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PayU managing director Jitendra Gupta said both Citrus and PayU were processing around $5 billion earlier but now they are processing around $12.5 billion annually. Photo: Aniruddha Chowdhury/ Mint
PayU managing director Jitendra Gupta said both Citrus and PayU were processing around $5 billion earlier but now they are processing around $12.5 billion annually. Photo: Aniruddha Chowdhury/ Mint

PayU exploring ways to get into digital banking segment: MD Jitendra Gupta

Citrus Pay co-founder Jitendra Gupta on life after the acquisition by PayU India, the rise of Paytm, and the digital payments roadmap ahead

Mumbai: Mumbai-based start-up Citrus Pay was acquired by PayU India late last year for $130 million in what was then touted as the largest M&A in the fast growing digital payments market. The combine owned by South Africa’s internet and media conglomerate Naspers is now run by Citrus founders Amrish Rau and Jitendra Gupta. In a Facebook Live interaction with Mint under its programme Deals Hub, Gupta, managing director, talks about life post-acquisition and the rise of Paytm, among other things. Edited excerpts:

You were on road to raise another round of VC funding but eventually settled for a buyout. Now, when you look back, do you think you made the correct decision and has the M&A proven to be successful?

It is one of the landmark transactions in the Indian payment space since it was an all-cash transaction. We were 90% convinced about the transaction. Deals are always challenging. As we stand today, our business has since doubled. Both Citrus and PayU were processing around $5 billion earlier but now we are processing around $12.5 billion annually. We have seen a change in terms of synergies on both cost and revenue side. Our margin has almost doubled as compared to what it was a year before. Our organisation has become more efficient. Our employee base has remained the same or slightly lower as compared to what we were a year back.

As a founder, it was a tough decision. In the wake of signing the deal, I was in a dilemma whether I was taking a right call or not. It was the toughest calls I have taken. In the end, the transaction that came out was the way market dynamics are evolving; it makes sense to operate larger companies than being smaller players as the larger companies make a much bigger difference in the ecosystem.

Give us a sense of the payments ecosystem right now. Freecharge got bought for a song by Axis Bank, Paytm only seems to be getting bigger with every other round of funding. How are you placed in the ecosystem?

We pay more importance to wallet as a form factor which is non-sustainable in the economic sense because in terms of consumer experience, consumer has to first put the money into the wallet and then use it for transactions. But at the same time, when you say that one player is gaining momentum while the other is not, then that shakes the equilibrium in the market. Paytm has also moved out from their wallet strategy because they are now focusing on providing a multi-services platform to their customers. Wallet, in my view, is just a means to get consumers engaged in a cheaper way and engaging them in financial services. They have executed it very well as they have a lot of money. For smaller players who have less money, they should just stick to the ground. I think there is no market for the wallet at present.

You say wallets are passe. What are you betting on within the online payments space?

When we see the next level of payment growth, we see leveraging payments data for credit. Out of 300 million working class or salaried people, only 15 to 16 million have credit cards despite having so many banks. This is where we feel the means of using alternative data where you may not access the income data as banks do but leverage the payments data and in this way we get credit on the floor. That’s what we are trying to do through our new offerings. We are very bullish on credit. If GDP has to grow, there has to be credit in the market to take the money out of the hands of public.

Talking of credit, there are so many NBFCs and online lending platforms that are raising PE funding. How would you be different?

The power lies in the data which we have. People who are able to leverage data and use technology faster will be having an upper hand. This is not a winner takes all market. Each state has at least 10 non-banking financial companies (NBFCs) and in the country we have 200 NBFCs, still the credit access is limited to a few million. We are looking after digital consumers who are internet savvy and have transacted digitally.

Give me your big vision statement.

We clearly have an aspiration to become a digital bank. A digital bank has three key offerings which include payments, credit and deposits. We are exploring ways to get into that segment now which could be in partnership with an existing bank or we could apply for a licence. That’s how we will evolve.

How are you viewing the rise and rise of Paytm?

I see Paytm as a combination of Alipay and WeChat. WeChat provides all the services in one platform while Alipay provides acceptance of payments in most places. So far Paytm has been successful.

Will PayU navigate in this direction?

We don’t want to get into the business of selling movie or air tickets. We just want to focus on financial services when it comes to digital banking like deposits, credits, investment advisory and not beyond that.

Are you profitable?

We are not yet profitable, but by December of this year we will be. We have reduced our cost margins and reached out to our customers and this is how we have benefited from the Citrus-PayU merger.

In the last two years, fintech is the only space where VC investors have shown interest. Have we over-invested in this particular space?

This market is very underserved. If we look at the digital payments space, it is still 3-4%. The credit availability is still less. Hardly 1% of people put money into mutual funds. There is so much of scope available and as a start-up if you catch hold of a niche market and do it really well then one can make a scalable business. From a VC’s perspective, what they have to identify is how to leverage future technologies and machine learning and chase the right business model, the right founder and the right technology.

Take us through the tech M&A and some important things that one should take care of for a strategic sell-out. What advice would you give to entrepreneurs?

It is a very individualistic phenomenon. The PayU-Citrus merger was a 100% cash deal. I moved to PayU and I didn’t want any kind of backlog with the new beginning. My decision to be at PayU was totally driven by what is right for the company. From a tech M&A perspective, founders have to let go of ego and think about what makes sense for the acquiring company and accordingly align their structure.

So many fintech start-ups get funded but those successful or showing signs of success are few... why?

Today the fintech start-up itself needs to work with banks and in a regulatory environment and that’s where the roadblock comes in because working with a bank, one needs to know the right set of people, convince the bank to trust your ability to drive things on the right path. On the regulatory side, the entrepreneur needs to know the regulations and all these things come with the relationship with the banks and your ability to drive things in a proper manner. Generally, what I have seen is that a tech entrepreneur is not good at building relationships with banks and a banker is not good at technology and therein lies a gap. A marriage between the two is required in this particular space.

What are your views on the government’s push towards digitisation? How is PayU placed to take advantage of this initiative?

For us it was a boon. Demonetisation and other initiatives forced me to use my credit and debit cards which I would not have otherwise used and this changed habits. The biggest change after the government’s initiative is that habits of customers are changing. The government is doing the job which we were not able to do for 10 years.

You are already in the shoes of an angel investor. If you were to do a reverse pitch, what would some of the ideas you would share with start-ups be?

A start-up becomes successful when it is operating in a larger market. Digital lending will be one such idea. Another thing which comes to mind is digital banking. With application programming interface (API) digital banking, one can clearly change the way digital banking can be addressed by small and medium enterprises (SME). Similar is the case with retail digital banking. These opportunities will play out in the near future.

To watch the full interview, click here.

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