Fighting off the next best

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The ugly truth about payments is its commoditized nature. One which makes payment companies utterly replaceable. To hang on to business from merchants, companies bleed themselves dry fighting the unwinnable price war. Unwinnable, because there is always someone with deeper pockets who can do a basis point (100 basis points = 1%) better.

What was the purpose?

So Pine Labs’ modus operandi was to become deeply seated within merchants, making it harder to unseat. Its ideal to get there was to do something extra. Selling software to process all types of payments, as a service, became that something extra.

The software meant merchants needed only one terminal to process payments from cards of any bank. So merchants didn’t need to have four different terminals from four different banks on their tills. (Each machine given by a bank could only accept cards from that bank). That saved the merchant’s monthly rent and expenses on maintaining different terminals. And for this software, all merchants needed to do was give Pine Labs a fixed fee of Rs 200-Rs 300 ($2.9-$4.3) per month per machine.

But such a solution was needed only by top-tier merchants like Shoppers Stop, Croma, BigBazaar. Keeping the relationship with such merchants is not easy, as they are always looking for the next best (read: cheapest) thing.

So Pine Labs slapped on value-added services. It started off with processing EMI payments on debit cards, a never-before, four years ago. It also helps retailers manage their loyalty programs to attract repeat users. With such value-added services, competitors say it earns an average revenue of Rs 800 ($11.6) per merchant per month.

“All of these types of services can lead to a doubling of the average revenue earned per user,” said a senior executive from a competitor. About 30% of Pine Labs’ revenue comes from value-added services and it wants to keep growing that line of business.

Trade with the merchants

With such value-added services, Pine Labs was able to set itself apart from other competitors like Ezetap, M-Swipe, and banks themselves, which went about selling PoS to merchants. Ezetap, too, is looking to offer more value-added services, and Innoviti, a much smaller rival, is targeting the same class of merchants as Pine Labs.

But with payments gathering steam, even though there are many growth avenues, Pine Labs needs to act fast. It has three choices: go forth and sign on the millions of smaller merchants. That is not only a cost-intensive business, it will also mean having to confront Reliance Jio’s PoS plans (we wrote about that here.) Then there is the route of going online. And finally, the how-to-make-more-money-from-your-existent-merchant-base move.

Of all the growth paths it has, doubling, tripling average revenue earned per merchant is the best choice in front of the processor. It is the path of least resistance and highest return on investment.

Effect of the telecom operators

“With Jio [and the likes of Paytm] entering the direct-to-merchant business, Pine Labs needs to monetize its existing footprint better. For that it needs more monetizable services and collecting richer data will help in more ways of monetization,” says Prasanna.

That is one of the reasons it bought Qwikcilver. Pine Labs claims it has 350,000 offline retailers from whom it processes about $20 billion annually. And Qwikcilver, with about 200 retailers, processes about $1.5 billion transactions annually, said Pratap. With such flows, Qwikcilver’s revenues were nearly half that of Pine Labs for the year ended March 2018, even though it processed less than 10% of what Pine Labs did.

It started off with processing EMI payments on debit cards, a never-before, four years ago. It also helps retailers manage their loyalty programs to attract repeat users. With such value-added services, competitors say it earns an average revenue of Rs 800 ($11.6) per merchant per month

And this is what makes Qwikcilver more than just a gift for Pine Labs. It has the makings of a silver bullet.