MC Explainer: Why Razorpay, PhonePe & Cashfree Payments are cutting ties with third-party orchestration platforms

Payments

In a significant development within the payments ecosystem, leading payment gateways (PGs) Razorpay and Cashfree Payments announced on January 20 their decision to pause integrations with third-party payment orchestration platforms (POPs), particularly targeting Juspay.

A Razorpay spokesperson told Moneycontrol: "Going forward, we will pause all integrations through third-party routing platforms. We will offer payment gateway services directly to our customers, ensuring our latest innovations reach them swiftly and enhance their operations seamlessly."

Last December, PhonePe had also adopted a similar strategy. To be sure, these PGs don’t have a direct partnership with Juspay but connect to the company’s POP platform when PGs integrate with their merchant customers.

These PGs have written to their merchants saying that the integration with third-party POPs will stop by March and they will have to be routed through the companies’ own POP platform. The merchants are expected to integrate the PG’s software or application programming interface (API) by then.

Following the announcement, Juspay issued a blogpost clarifying its position as a technology service provider (TSP) rather than a payment intermediary. The company emphasised that this move will not impact its revenue though POP is believed to account for more than 40 percent of the company’s income stream.

Will this decision reshape the dynamics of merchant payment integrations, affecting the ease of operations? Will this impact payment orchestrators in India?

Also read: After PhonePe, Razorpay and Cashfree sever ties with third-party orchestration platforms

What are POPs?

Payment orchestration platforms act as intermediaries between businesses and multiple payment gateways.

They simplify the management of payment flows by offering features like multi-payment gateway routing, transaction optimisation and failover mechanisms. These platforms are especially useful for businesses operating at scale, as they streamline payment operations and reduce dependencies on a single PG. However, as part of POP services, Juspay also provides customers with several other software offerings such as routing, reconciliation, OTP reading, authentication and token generation for the payments platform of the merchants. The company earns a small commission per transaction for these products.

“It is not clear whether the PGs have developed all these solutions as part of their POP stack. Not sure whether large merchants will be swayed by the PGs' promises of a better product to migrate completely to their platform,” said a source close to the development.

Why are payment gateways moving away from third-party POPs?

When PhonePe severed ties with Juspay, several industry experts said that the reason behind this was to offer merchants an end-to-end service.

By managing the entire payment process—from transaction initiation to final settlement—gateways like Razorpay, Cashfree and PhonePe can ensure tighter control over the user experience, faster deployment of innovations and enhanced security.

This shift also reduces dependency on intermediaries, streamlining operations and improving efficiency. Additionally, with rising competition in the payments space, owning the end-to-end payment journey enables gateways to build stronger relationships with merchants and maintain a competitive edge in the evolving fintech ecosystem.

Razorpay, in a statement to Moneycontrol, outlined the rationale behind the decision, stating: “We will offer payment gateway services through our own, direct integrations to our customers… We can ensure our latest innovations reach our customers swiftly and enhance their operations and experiences seamlessly.”

All the players that have cut partnerships with third-party orchestrators have built their in-house payment orchestration platform. Cashfree introduced ‘Flowise’ to the market last year and Razorpay announced the launch of ‘Optimizer’.

“From a business sense, too, this could offer a lot of benefits. Many players might have though, why give up on this revenue… Eliminating third-party orchestration reduces the reliance on external platforms, potentially cutting costs and improving margins,” said a fintech founder, requesting anonymity.

Juspay’s technology prowess 

Juspay is a prominent player in India's digital payments landscape with considerable technological heft. When the National Payments Corporation of India was building a UPI or  unified payments interface app for itself, it approached Juspay to develop BHIM. Its OTP read software made the checkout experience through mobile apps of ecommerce platforms seamless. Even today, it works with several UPI apps, managing a key part of their payment orchestration.

Juspay posted strong growth in its financial performance, with its operating revenue increasing by nearly 50 percent in the fiscal year ended March 2024.

The SoftBank-backed company reported a revenue of Rs 319.32 crore for FY24, up from Rs 213.39 crore in FY23, marking a growth of 49.6 percent. Additionally, Juspay managed to cut its losses by 10 percent during this period.

The PA licence conflict

In February 2024, Juspay received authorisation from the Reserve Bank of India to operate as a payment aggregator (PA), enabling the company to offer comprehensive payment services to merchants including PG solutions.

Some industry insiders suggest that a key reason many PGs are moving away from Juspay is its recent acquisition of a PA licence, which could potentially give the company a dominant position in the market.

However, Juspay believes that the developments will have low or no impact on its revenues.

“We serve more than 40-50 PAs across the globe. This will purely be the choice of merchants and many have written to us saying that they are very much happy with our partnership and will stay with us… Merchants pay us for our software as it provides them value. We have no dependence on these PAs for this revenue,” the blogpost said.

It boils down to merchants’ choice

While platforms like Razorpay and Cashfree have given a deadline for merchants to shift to their platforms (March 31), for merchants relying on POPs like Juspay, the decision could necessitate operational adjustments.

While POPs offer the flexibility of managing multiple gateways, the loss of integration with leading providers like Razorpay and Cashfree may limit options for multi-PG routing.

“Merchants using POPs to switch between gateways based on transaction success rates or cost efficiency may need to reconfigure their systems… It will now be interesting to see whether they will be able to do that,” said an industry expert, who did not want to be identified.

Many believe that this could hit local or neighbourhood stores and the like hardest.

“Smaller businesses, which often lack the technical expertise or resources to manage direct integrations, could find it challenging to adapt,” the person quoted above said.

What does this mean for POPs?

Several experts Moneycontrol spoke to said that this will ultimately be the choice of merchants to either move away from direct integration or to have a payment orchestrator.

And for Juspay, this development presents both challenges and opportunities.

The exit of major players like Razorpay and Cashfree Payments from their ecosystem could reduce the appeal of these platforms for merchants. POPs may need to innovate and expand their service offerings, focusing on areas like advanced analytics, fraud prevention and integration with alternative gateways to remain competitive.