What is Core & Satellite strategy?

After blazing a trail at home, Indian fintech firms have set their eyes on markets abroad with companies such as Razorpay, Cashfree, PayGlocal and Skydo scrambling to obtain licences to offer international payment services, The Economic Times has reported.

These companies need to get payment aggregator-cross border (PA-CB) licence from the Reserve Bank of India. They must procure it by April 30.

International transactions offer fatter margins than those in India. Experts say that these margins range from 2.5% to 4%, while those in the domestic market typically range about 1%. If these entities can enter this lucrative market, it will also help the high valuations of these startups. The income from these transactions would certainly bring in substantial revenue since the average amount of B2B cross-border payments work out to around $5,000. Payments across the border at the consumer level too are rising steadily.
“Razorpay is building a solution for cross-border business payments. They eventually want to expand from cross-border consumer payments to large ticket vendor payments for account-based fund transfers,” an industry executive told the newspaper.

Razorpay is supported by venture capital firms such as Peak XV Partners and Tiger Global and is one of the biggest merchant payment processors in the country. It is based in Bengaluru.

Cashfree, too, has applied for a PA-CB licence. It’s cofounder Akash Sinha told ET, “We already have a domestic payments business, we can bundle international payments as an offering for our existing merchants.” Sinha added that they would focus on business to consumer (B2C) transactions to begin with.

Smaller and new entrants in the market such as Skydo and PayGlocal are also in the fray.

“We have applied to RBI for the cross-border licence. We are focused on the software and services export segment majorly, but we have some goods exporters among our clientele too,” said Movin Jain, cofounder of Skydo. Skydo is in the business of managing formalities concerning international payments offering settlement within a day of the transaction.

PayGlocal already has an in-principle licence from RBI for domestic merchant payments business. It is going to shortly apply for the PA-CB licence.

Two US-based companies that are major players in the cross-border payments sector are Payoneer and PayPal. In 2021 PayPal shut its India payments business. Since then it focused on cross-border transactions for Indian merchants’ goods and services exports.

“Global players operate on a massive scale. They also charge higher margins to Indian businesses. With the right product and pricing strategy, there is a major disruption opportunity present here,” a senior executive at one of the large payment firms told the newspaper.

Earlier, fintech firms were given an online payment gateway service provider licence. This licence recognised them as technology service provider to banks. But in October 2023, the banking regulator issued PA-CB guidelines to facilitate the emerging international payments business, thereby bringing these fintech operators under its ambit.

By their very nature, cross-border transactions are more complex than domestic ones. Therefore, cross-border transactions necessitate many layers of formalities such as mandatory video know-your-client (KYC) compliance and remittance limitations.

The industry estimates fintechs currently process approximately $10 billion transactions which is a meagre part of over $250 billion of exports by India’s small and medium businesses. Therefore, the scope of opportunity offered by this sector is huge.