Mint Explainer: Why Razorpay and Cashfree are ditching Juspay, and what it means for the fintech sector

“Going forward, we will be pausing all integrations through third-party routing platforms. We will offer payment gateway services through direct integrations with our customers,” a Razorpay spokesperson said.

A spokesperson for Cashfree said, “We plan to transition away from integrations via third-party routers and orchestrators. By offering direct integration, we can accelerate the delivery of features and offer superior support and merchant experience.”

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News portal The Head and Tale was the first to report the development.

The news quickly caught the attention of the fintech world. While payment aggregators such as Razorpay and Cashfree stand to benefit, Juspay’s dominance of the multibillion-dollar orchestration space, from where it earns about 90% of its revenue, could be under threat. There could be implications for the wider fintech industry, too, as companies look to build all-in-one solutions rather than rely on third parties for specific services. 

Let’s take a closer look.

What are orchestration platforms?

An orchestration platform like Juspay works with businesses to facilitate payment flows across multiple gateways such as Razorpay, Cashfree and PayU, as well as banks and other providers. It routes payment requests from the merchant through the available gateways and picks the one that offers the lowest transaction failure rates and best conversion rates.

With the average success rate of payments in India ranging between 65-70%, orchestration platforms ensure seamless transactions between customers and businesses. Juspay’s orchestration business relies on charging a commission from merchants for every transaction it facilitates.

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The expansion of the online merchant ecosystem has led to a surge in digital payment transactions. This surge has, in turn, significantly increased the rate of payment failures. To address this issue, payment orchestration platforms like Juspay emerged. These platforms enable merchants to optimise payment routing by directing transactions to the payment aggregator with the highest success rate at any given time.

The payment orchestration platform market size was estimated at $4 billion in 2022 and is expected to touch $13 billion by 2032, according to data from market intelligence firm Market Research Future.

Why is competition on the rise?

So far, merchants and payment aggregators have found great value in Juspay, given its ability to reduce transaction failures by picking the best-suited gateway at any given point. 

Juspay thus holds the pole position in payments orchestration. However, competition in the space is building. In 2023, Razorpay–among the top payment gateway platforms by market share—rolled out its own orchestration platform ‘Optimizer’ that can be linked with merchants’ technology directly. PhonePe, which moved away from Juspay last year, also has an in-house orchestration platform to completely remove its dependence on third-party routers.

A major reason why companies such as Cashfree, Razorpay and PhonePe are moving away from third-party connections is that a full connection with merchants would give them better control of their client base and allow them to expand their payment solutions. 

“While other orchestration platforms are still fairly new and small, the scaling potential is massive. The sizable customer base of major payment gateways such as Razorpay will help them secure bigger market share easily,” said a fintech executive who did not wish to be named.

For context, Razorpay has powered more than 50,00,000 businesses to date, according to its website. Optimizer already has 1,000 enterprise clients.

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PhonePe, which ranks among the top UPI payments platforms, could also grow its in-house orchestration platform relatively easily, given its customer base of more than 500 million, said the person quoted above.

Moreover, eliminating the third-party orchestration layer could help fintech companies reduce costs and improve unit economics with existing users.

Another reason for the shift could be that Juspay received a license to operate as a payment aggregator last February, indicating intention to widen its payments-services footprint. “It is possible that merchants decide to work directly with payment aggregators like Razorpay since they now have an orchestration layer as well. That could come as a big blow for Juspay. But Juspay is also working on widening its offerings so it will boil down to the merchant’s choice,” said the fintech executive quoted above.

How will this affect Juspay?

Juspay clocked operating revenue of ₹320 crore in FY24, nearly 90% of which came from payment platform integration fees, according to filings available with the corporate affairs ministry, so it could stand to lose a lot from other companies offering its niche services.

However, Juspay’s co-founder and chief operating officer Sheetal Lalwani maintained that any impact on the business was likely to be short-term and marginal. “We are a diversified business and if there is any short-term disruption it will be marginal. We are taking a long-term view here. We are focused on putting out an open-source orchestrator and the merchants can use it like any other commercial open-source model,” Lalwani told Mint.

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Juspay also said payment aggregators’ decision to encourage the use of their own orchestration platform would limit choice for merchants. This could hamper India’s effort to shift towards an interoperable and open-source payments system, according to Lalwani. “This is to increase lock-in and improve unit economics. But merchant choice gets reduced and payments have to get commoditised,” she added.

What’s the potential impact on the wider fintech industry? 

The developments signal a shift from fintechs offering niche services to developing all-in-one payment solutions, which could increase competition in the space but edge out smaller companies. 

But whether businesses choose to ditch Juspay’s orchestration platform for those of Razorpay, Cashfree and others will ultimately depend on the quality of service they offer, especially on reducing failed payments.