Kolkata: RS Software (India) Ltd, an early bird in the payment solutions business, is parting ways with its key client, US financial services giant Visa Inc., from which it derived more than 90% of its revenue for years.
After 10 years of growth, RS Software is scaling back its engagement with Visa to tap into “multi-billion dollar opportunities” emerging in the digital payments solutions business, chairman Raj Jain said in an interview.
There were several restrictive covenants in the so-called master services agreement with Visa which prevented RS Software from exploring other business opportunities, according to Jain.
By snapping ties with Visa, RS Software is creating an opportunity to potentially work with 100 countries building their online payments systems, he said, referring to a research report by consulting firm McKinsey & Co.
RS Software has prepared itself for the transition, which is estimated to take up to three years. To rationalise costs, the company has pared its workforce from 1,100 to 600 within the past 15 months or so. “With large cash reserves and zero debt, we are well-positioned to implement our transition,” Jain said.
The impact of this transition could be seen in 2015-16 in which RS Software’s revenue declined to Rs205.5 crore from Rs388 crore in the previous year and net profit plummeted to Rs10.6 crore from Rs67.4 crore. Things are going to head further south in the current year, according to Jain.
To depend on one client is always risky, said Sarabjit Kaur Nangra, an analyst at Angel Broking Pvt. Ltd. If the client has monopolistic control over its market, a service-provider can survive on it for a long time. But eventually all such arrangements run aground, she added.
RS Software is now looking to cash in on such opportunities across the world. McKinsey projects digitisation of payments to open up “a $4 trillion opportunity” between now and 2025, Jain added.
Until now, RS Software was a service provider with a single dominant client in North America. It is now looking to diversify to Europe and Asia, with revenue coming from national payment networks and digital payment channels run by financial technology firms, and not just from services offered at contracted rates.
RS Software has traditionally hired more engineers than financial services experts, said a former employee, who asked not to be named. It has always been an “implementation company” which at one point hired a lot of technology graduates, he said. To transform the company into a solutions developer is the biggest challenge, he added.
It has started to take baby steps in that direction. RS Software is the technology provider to National Payments Corp. of India Ltd for the Unified Payments Interface (UPI) launched by the Reserve Bank of India in April. “I’m absolutely convinced that UPI is that transformative product which will change India,” Jain said.
But organic growth is going to be difficult and time consuming, said an analyst at SKS Capital and Research Pvt. Ltd, a wealth management firm. New business opportunities will not be able to make up for the loss of revenue from Visa, at least in the near term, this analyst said, asking not to be identified.