Razorpay Payment Gateway: India's Three-Party Payment Welcomes Chinese Stirrer, Bringing New Opportunities for Chinese Overseas Companies

The competitive landscape of the Chinese market has changed as a result of Chinese companies going overseas, bringing new opportunities for these companies to grow.

A year ago, Chinese internet companies entering the Indian market faced a number of challenges. in June and September 2020, the Indian government banned 118 popular Chinese apps, including TikTok, PUBG, ClubFactory, and BigoLive, among others, which are hugely popular in the country.

Despite the ban, Chinese internet companies still have little hope that the restrictions will be lifted. Some companies have chosen to abandon the Indian market and focus instead on the Middle East, Africa and Latin America, while others have chosen to shift direction and continue to invest in India. These new directions include cash loans, desktop gaming, live social streaming and financial investments.

A surprisingly large number of Chinese Internet teams have flooded into India, fuelling rapid growth and prosperity in the industry. However, this has also led to increased competition and some teams engaging in illegal activities, triggering investigations by Indian authorities into Chinese internet companies. Many companies have had their funds frozen in banks and payment companies, affecting even legally operating companies.

Recently, a third-party payment company called OnionPay quietly entered the Indian market, aiming to provide better solutions for Chinese companies.

Alipay veteran takes plunge into Indian internet market

Luo Ming, a veteran entrepreneur from Alipay who has started several companies in China.In 2019, after seeing former Alibaba colleagues and friends enter the Indian internet market, Luo Ming and his partners, also from Alipay and Yauzan backgrounds, decided to shut down their previous B2B project and focus on their latest venture in India.

Choosing the right direction took Luo Ming and his team a lot of time.In 2019, the hottest sector for Chinese companies to enter the Indian internet market was cash loans. However, after the new crown epidemic hit India in early 2020, the cash loan industry faced multiple crises, including Yes Bank's bankruptcy and official extension of repayment terms. As a result, Luo Ming and his team excluded cash loans from their business direction.

In March 2020, a regulatory policy issued by the Reserve Bank of India (RBI) caught their interest. The policy brought payment gateways and payment aggregators under the regulatory purview, clarifying the functions, responsibilities and obligations of payment companies. Despite the high compliance requirements, Luo Ming and his team saw an opportunity.

In April, Luo Ming noticed that a number of purely online applications with payment capabilities, such as desktop gaming, live social streaming and live video streaming, were entering the Indian market. They realised that their expertise in payments could be a key success factor for them in India.

Recalling the decision to focus on payments, Luo Ming said, "China is far ahead of several existing companies in India in the payments space, 5-10 years ahead of them in terms of payment scenarios, applicable industries, extended services and user experience. However, Chinese companies in India are still in the early stages of refining their products and adapting to the habits of users whose payment needs are not yet clear. We believe there is a great opportunity here."

The epidemic has also naturally hampered knowledge exchange between Indian and Chinese internet companies.Prior to 2019, many founders and executives of Indian internet companies had travelled to China to learn and explore the market as well as Chinese app offerings. Zhumao alone organised around 250 Indian internet company executives to visit China between 2017 and 2019. Many of the best Chinese business models were either introduced to the Indian market or copied by local Indian companies. However, the epidemic has brought this exchange to a screeching halt, giving Chinese payments companies more time to develop.

Luo Ming and his team then set out to develop an Indian payment product called OnionPay. when asked about the name of the product, Luo Ming explained that just as the price of pork is an indicator of the cost of living in China, the price of onions plays the same role in India. Onions are a basic food item in every Indian household, and they hope that OnionPay will become an infrastructural payment tool in India.

Compliance is the biggest challenge

Luo Ming and his team underestimated the difficulty of operating in the Indian payments space. "In fact, our product, OnionPay, was developed by the end of 2020 but could not be launched due to compliance issues."

Under RBI regulations, merchant funds must be processed through a regulated account in Indian aggregated payments, rather than through the company's own current account. Many "quadruple payment" companies have opted for the latter, renting out payment channels to other non-compliant merchants under the guise of large merchant accounts.

The reckless growth of non-compliant businesses has led to violent collections and illegal lending in the cash loan industry, as well as gambling and fraud in table games. Victims in India have reported these problems, leading Indian authorities to track down Chinese companies. This has made Indian payment companies and banks wary of Chinese companies, increasing the challenge of operating companies legally.

Luo Ming faced a similar challenge: "Our first bank in India opened a current account for us, but the regulatory account was delayed due to our Chinese background, which was the reason for the RBI's rejection." The team later analysed that RBI's concerns were amplified by the bank's own risk aversion. "We will try other banks," says Luo Ming and his team reluctantly.

Luo Ming learnt from their experience and was well prepared when communicating with the new bank. At this time, OnionPay opened an Indian office in Gurugram, near Delhi, and local Indian employees were involved in the bank communication. In the end, OnionPay successfully passed the on-site inspection by RBI and opened a regulatory account.

Diversified payment methods

With a regulated account, OnionPay can officially connect to Indian banks and e-wallets. "We started by supporting UPI payments, which account for nearly 70% of total internet payment transactions in India, and was definitely the first payment method to be established."

"In addition, we will soon be connecting with PayTM and PhonePe," Luo Ming said. According to him, PhonePe has overtaken PayTM in terms of transaction volume in recent months, especially in offline shop payments. However, PayTM is still the dominant, if not the only, payment method in certain industries such as live social streaming.

Luo Ming said, "By mid-September, we expect to connect with internet banking, credit cards and multiple wallet products in India. These together will cater to nearly 991 TP3T of payment options."

Additionally, because OnionPay is directly connected to Indian banks and wallets, it can enjoy more favourable upstream fees and offer merchants more favourable fees for collecting payments. This makes OnionPay more secure and cost-effective than four-way payments and suitable for long-term compliance business.

Cross-border settlement becomes possible

Luo Ming is particularly excited about cross-border settlements. "Chinese companies wishing to connect directly to Indian third-party payments must have an Indian entity. If they don't, they are left with the option of four-way payments, which is non-compliant, unstable and insecure. These restrictions force some compliant companies to use non-compliant payment channels."

However, some industries will soon have legal channels to make direct cross-border payments to India, as Luo Ming reveals that they have already begun applying for a special clearing account called the "Import Receipt Account", which allows Chinese cross-border e-commerce companies to open an account through OnionPay and collect rupee credits from Indian consumers and settle them directly to the merchant's bank account in mainland China or Hong Kong, without having a physical presence in India. OnionPay allows Chinese cross-border e-commerce companies to open accounts through OnionPay without an Indian entity, collect rupee loans directly from Indian consumers, and settle them in the merchant's bank account in mainland China or Hong Kong.

This seemingly simple requirement had no good solution before. Some cross-border e-commerce sellers targeting the Indian market have only opened PayPal accounts, but few Indian consumers have PayPal accounts. Others opted for four-way payments, raising payment costs to 8%-10%, which is unsustainable. Some have had to use Indian companies as intermediaries, increasing financial and operational costs. Traditional cross-border collection companies did not introduce the ideal Indian collection solution.

Over the past few months, Amazon has suspended tens of thousands of Chinese seller accounts, accelerating the shift of Chinese cross-border e-commerce sellers away from the Amazon platform and towards building their own standalone websites. "Our OnionPay India cross-border collection solution allows many sellers to sell directly to Indian consumers through their own standalone websites with a very lightweight operating model and low payment channel costs."

Continuously improving compliance to provide long-term service

When asked about its medium and long-term plans, Luo Ming emphasised the importance of being fully compliant with Indian regulations. An RBI policy this year requires all payment gateways and aggregators to complete by 31 December 2021 a mechanism to protect users' personal information. "This is not only in line with the global trend of strengthening the protection of users' personal information, but is also a mechanism that should be implemented by financial payments companies."

"In fact, we have plans to complete PCI-DSS security certification this year," Luo Ming further explained. "PCI-DSS Security Certification is a very rigorous review process authorised by Visa and Mastercard and completed mainly by independent review companies. It is a comprehensive security review of a payment company's online payment system, covering nearly 200 review items. Passing the PCI-DSS security certification is critical for long-term compliant payment operations in India."

Impact of India-China relations on business

"As a Chinese company, is OnionPay worried about the impact of unstable Sino-Indian relations? For example, what if the Indian government suddenly stops your operations?" This is the question that worries the author the most.

Luo Ming contemplated for a while and said, "It is true that this possibility exists, but everything has its risks. Currently, RBI is aware of our Chinese background but still approved our regulatory account. We will further expand our local Indian team, rehire Indian executives, do our own compliance work and maintain regular communication with Indian banks and financial regulators. With an open and transparent mindset to participate in the development of the Indian financial payments industry, we will not be easily banned if we are a committed contributor to this industry."

Luo Ming hopes that OnionPay will become a trusted payment partner for Chinese Internet products in India, safeguarding their business operations in the country.