Merchants left fuming after payment gateway firms try to work around Juspay

Most retailers work with multiple PG firms and Juspay helps them integrate with multiple firms. From card tokenisation, to the checkout page user experience and user interface.

For most large merchants, the ideal situation is always to build a POP in-house, but it is easier said than done given the companies’ larger priorities of growing the business. It is also constrained by budget and other resources to build and manage the product.

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. Some of the PGs also offer these products and features to their merchants.

While every large merchant would love to work with a single player providing all the features and services they want, finding all that in one player is often difficult. The merchants work with multiple PGs to reduce business and operational risks.

Nobody solves everything

“Nobody can say we will solve everything. This is not yet the right moment. Multi-channel and multi-party model is the reality,” said Amuleek Singh Bijral, founder of Chai Point.

To be sure, the PG firms do not directly work with Juspay, but connect to the company’s software while working with merchants. Juspay’s partnership is with the merchants. And forcing merchants to opt for the PG’s POP does not seem like a winning idea.

“It is a competitive world and our POP has not been as good as Juspay’s. It is not just POP, but several other features which Juspay has managed to do better. It is an open system and anyone can provide the services,” said the CEO of a large PG firm, which has decided to continue to work with Juspay.

In fact, this presents an opportunity for some PGs that are willing to work with Juspay. “We have seen two large merchants coming forward after the fracas,” the CEO said.

For merchants, Juspay is like a system integrator that works with them closely and provides all the software they need to get an online payment going. And Juspay has been expanding its portfolio rapidly.

“For most PGs, the gateway commission has been shrinking because of the intense competition and they all want to provide more services. But Juspay tends to have all these solutions and merchants tend to go to them first. So this move seems to augment and protect their revenue and profits,” said the CEO of another PG firm, which also continues to integrate with Juspay.

The origin

While the PGs are maintaining that controlling end-to-end experience will help them serve their merchant clients better, this does inconvenience merchants, who would like the status quo to continue.

“Our hope is that it won’t come to that. We have our own POP layer in case, but we have been using Juspay for over nine years now. If someone else offers us a better experience, we are ready to move,” said Gaurav Agarwal, CTO of Tata1mg, an online pharmacy player.

Apart from the margins and supplementary revenue opportunities, a key issue for most PGs is that Juspay POP determines the routing of payments. Most large merchants use up to six gateways for payments simultaneously and route transactions based on traffic, success rates, downtime and other parameters.

While volume guarantees and commission is one of the key factors in determining a PG, downtime or a success ratio of below 90 percent means payments will be routed through a different channel. This clout of Juspay unsettles most PGs.

However, most merchants Moneycontrol spoke with said that the software and the live dashboard are transparent and they have the power to override Juspay’s suggestion.

The situation got worse as Juspay recently got the regulator’s license for payment aggregator, which altered its status as a neutral arbitrator. Juspay is a technology service provider (TSP) for merchants and it does not handle customer money, and hence, as a POP it does not need a license, unlike the PG firms.

According to sources close to Juspay, it does not have any ambition to be a large PG, in an already crowded market, but wants to procure a license in case RBI brings other payment companies under the regulatory fold. For instance, cybersecurity and data security of payment companies are also increasingly coming under the regulator’s concerns.

Smaller merchants are unaffected

For smaller merchants, the impact of these shifts in the payment ecosystem might be less pronounced.

"We process about 1,000-1,500 orders per day and we have always worked with a single payment gateway, and it’s been smooth for us. We don’t rely on third-party orchestrators, so the recent changes don’t really affect our day-to-day operations," said a founder of a Chennai-based clothing brand requesting anonymity.

"Switching between gateways is simple, and we trust our payment provider to keep things running efficiently. It’s business as usual for us," the person quoted above said.
Many small businesses often operate with just one payment gateway, simplifying their transactions and relationships with providers. Without the complexity of multiple third-party orchestrators, these merchants may not be as affected by the decisions of payment gateways to exclude third-party platforms from their payments flow.

While small merchants remain largely unaffected by changes in the payment ecosystem, they form a smaller portion in terms of transaction value compared to larger businesses.
Not indispensable

However, despite Juspay’s deep integration with merchants, they are not indispensable. And that could be alarming for Juspay as POP and several allied features bring around 50 percent of revenues for the company.

“As of now, some of the large PGs continue to work with Juspay. But tomorrow if more companies join them, I will have no choice but to build this in-house,” said the senior executive with one of the merchants.

This does not mean that Juspay will not have any role to play. It could well sell the software to the merchants and help the companies manage the POP piece without being a direct party. The move away from the fees per transaction revenue model of Juspay, could be a big jolt for the company.

Most merchants will have to spend time, effort and money to even integrate with an existing PG’s POP product as it will need multiple tests, evaluations and testing apart from the legal agreements, all of which is a hassle they do not want to go through.

“There are a lot of moving parts and integrating all payment methods, credit and so on is painful,” said a third executive with a merchant.

However, the most concerning aspect of the recent events is that this goes against how the Indian payments ecosystem operates. It is based on an open application programming interface (API) and interoperability. The country’s most popular digital payments method UPI also has multiple partners from banks to TSPs and UPI apps for even a transaction worth Re 1.

“The problem with the approach is this fight between payment companies is taking away the choice of merchants. While they are fighting, we became the victims,” said one of the executives quoted earlier.