Online Payment Fraud: What Is It and How Razorpay Prevents It

FeaturedFraud Prevention for Online Businesses

This is the second blog in our series on online security and fraud prevention. To understand more about online safety (how to distinguish between a secure and non-secure website, how to ensure you are making a secure payment) read the first part here. To understand how online payment fraud occurs and the steps to prevent it, read on!


There is a reason why banks put up disclaimers announcing that their employees do not ask you for sensitive data, or that you should never reveal details like your OTP to an unknown person.

Online payment fraud is a reality of the internet age we live in and the numbers are only set to increase with the increasing digital adoption in India. According to a study by the credit information company

Experian and the International Data Corp (IDC), the fraud risk in India is currently pegged at 8.1 points; second only to Indonesia (8.7 points) and significantly higher than the average 5.5 points in the Asia Pacific region.

A 2016 consumer study conducted by ACI Worldwide places India at the fifth position in terms of total card fraud rates; behind Mexico, Brazil, United States, and Australia.

As they say, the best weapon against any problem is education; so let’s begin by understanding the different types of payment frauds that occur in India and how online sites and payment gateways like Razorpay prevent it.

Online Payment Fraud: The Different Types

The most common types of online fraud occur via phishing or spoofing, data theft, and chargeback or friendly fraud. We have explained these in detail below.

Online Phishing or Spoofing

Phishing is the process of accessing one’s personal information through fraudulent e-mails or websites that claim to be legitimate.  The information gathered this way can include usernames, passwords, credit card numbers, or bank account numbers.

The most widely used method for phishing is to redirect an online user (from an email or SMS) to an “official” website where they are asked to update their personal information.  You are thereby tricked into revealing personal information that you would ideally not reveal to anyone else.

Phishing can also occur via other electronic means such as SMS, instant messaging, and on email. You can be redirected to make a payment on a website that looks legitimate, but which is created to capture your card details so they can be used later.

According to reports, India is the third-most targeted country for phishing attacks, after the US and Russia.

Data Theft

Sometimes, dishonest employees or partners can steal credit card data from businesses and use this for committing fraud. Most online sites take stringent measures to ensure that such privacy breaches do not occur.

Instead of storing credit card details as is, for instance, websites and payment gateways use methods like tokenization and encryption to keep the data secure.

Razorpay takes data security very seriously. We are a certified ISO-27001 compliant organization, which means we undergo stringent audits on our data privacy processes.

Chargeback Fraud or Friendly Fraud

Let’s say a customer makes an online purchase. Later, they claim that the purchase was made fraudulently and ask for a chargeback – even though they made the purchase themselves! (A chargeback – in the simplest of terms – is an order from a bank to business, asking it to return the amount paid for a possibly fraudulent purchase.)

This is known as chargeback fraud or friendly fraud, where business processes a transaction since it seems legitimate; only to be issued with a chargeback later on.

Chargeback frauds cause GMV losses and are a hassle for any business. We have a Razorpay Chargeback Guide that will help you understand why chargebacks happen and take steps against fraudulent charges.

The Effect of Payment Fraud on Businesses

As per the current terms and conditions, a credit card issuer (i.e., the bank) does not consider the cardholder liable for any fraudulent activity; for both card-present and card-not-present frauds.

Therefore, payment frauds involving credit cards have a significant effect on the business community and a significant impact on a merchant’s bottom line. Every time a customer issues a chargeback, it leads to loss of both inventory and GMV. This is especially true for retail establishments, where the profit margins are usually small.

Regarding industry, the subscriptions industry continues to have the highest rate of fraud for two main reasons:

  • Subscriptions are essentially a card-dependent service; wherein the USP of the service is that the customer does not have to make manual payments. It is easy to claim that one’s card was used without knowledge in such a scenario.
  • Fraudsters and hackers use subscription services to ‘test’ cards. Online subscription services usually provide a one-month free trial, but one needs a credit card to initiate the trial period. Since the value is negligible, such payments usually go unnoticed by a card owner. If the card details are incorrect, the subscription business shares a detailed authorization error; thus making it easy for the hacker to modify their strategy and continue using the cards.

Razorpay: How We Help Businesses Reduce Fraud and Mitigate Risk

Apart from the mandatory protocols, Razorpay has its processes (developed in-house by our tech whizkids) to detect and prevent fraud and mitigate risk. As a payment gateway and a converged payments solution company, we take data security very seriously.

By delving into our data and analyzing patterns, we have been able to institute processes that ably discern between a ‘normal’ and a ‘suspicious’ transaction with credible accuracy. These systems are divided into two types:

a) Systems for detecting ‘Merchant Fraud’

Merchant fraud occurs when someone creates a fake or bogus company with no intention of selling any product to the customer. The business appears legitimate; but since it offers no actual goods or services, all users who make an online purchase only end up losing their money.

As a payment gateway, Razorpay has strict processes in place to vet every company which uses our gateway for processing payments. Some of the ways how we check for merchant fraud include:

KYC checks: Adhering to strict KYC norms even before we onboard a business is an integral part of fraud mitigation. We have an in-house ‘Risk and Activation’ team that runs background checks on new businesses and vets them before they are ‘live’ on our payment gateway.

At Razorpay, we take this check one level higher by monitoring all suspicious and potentially fraudulent businesses, and the transactions that originate from them.

Transaction monitoring: Razorpay Payment Gateway has an inbuilt ‘Risk’ logic which can sniff out a possible fraud faster than a K9 squad. Let’s say a merchant who gets 3-4 online orders in a day suddenly starts to get 300 daily orders.

A sudden spike in transaction velocity (number of transactions per minute/hour/day), volume (amount transacted for), or pattern (international orders for a local brand) is an indicator of fraud and our systems immediately flag such transactions for further investigations.

Our ‘Risk’ logic also has 72 odd rules for monitoring the thousands of transactions on our payment gateway on a daily basis. This logic is designed according to the merchant, and our logic pathway can easily differentiate between standard day-to-day transactions and those that carry a high probability of risk.

b) Systems for detecting ‘Customer Fraud’

Customer fraud occurs when a stolen or lost card is used for suspicious activities. It can also occur for other payment modes. Not only does this affect the user, but it is also detrimental to e-commerce websites as it increases cases of refunds and chargebacks, and leads to loss of GMV.

At Razorpay, we strive to protect both our merchants and our customers. Which is why we conduct extensive transaction monitoring as well to protect both their interests. How do we do it? Here’s a peek:

Checking for hotlisted cards: Every time a card is used for payment, our gateway connects with the card provider to check if the card has been hotlisted. (Hotlisting means that the card has been blocked temporarily or permanently for use). This is done in real-time so that a verified transaction is still completed within seconds, while the suspicious ones get flagged.

Pattern-based transaction monitoring: We also use geographical and pattern-based transaction monitoring (as for detecting merchant frauds) to identify suspect transactions. This helps us in preempting and preventing chargeback frauds and other types of customer frauds. We have a hit ratio of being able to identify 85% of fraudulent cases in advance.

Online Fraud Prevention: The Future

Online fraud will remain a contentious issue even in the days to come. The more we connect and transact online, the bigger the threat. Moreover, since we cannot eliminate it, the solution must be to remain on guard every single second. The only way to prevent online fraud is through vigilance and regulation.

A good example here is the 3D Secure (3DS) protocol that VISA had developed to keep its customers safe, and which has since been adopted by other card companies like American Express, MasterCard, and JCB International.

A similar process is the 2FA used in India, which is mandatory for all cardholders and card-issuing banks. The RBI has also mandated online alerts for all card transactions – even those where the cardholder physically swipes their card at a PoS system.

For all transactions considered suspicious, cardholders have the option to issue a ‘de-activation request’ immediately and hotlist their cards.

The Indian government’s decision to appoint a nodal agency for dealing with phone frauds – called the FCORD initiative – is another praiseworthy step. We at Razorpay are also in touch with the MHA, which has designated the FCORD as the Nodal Agency for reporting and preventing Cyber Crime frauds in India, regarding the same.

While a zero-fraud system will take some days to achieve, we are constantly building new processes to minimize fraud risk for all consumers.

The bottom line though remains this: If you are building an e-commerce website, remember to follow all the protocols mentioned above and minimize the risk of fraud. Alternatively, find a payment gateway (hello there!) that has stringent security protocols already in place. We’re just a click of a button away!

How Secure Are Your Online Payments?

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At Razorpay we strive to make every transaction done via our payment gateway a secure payment. We’re a technology-first online payments company and online payment security is in our DNA. We employ a ‘no stones unturned’ approach to safeguarding the interest of both the online businesses who use our products, as well as their consumers.

We also understand the assurance of secure payments is one of the primary drivers behind the choice of a payment gateway.

With the growing number of e-commerce users and transactions in India,, it is important that we are all aware of the mandatory security protocols for e-commerce websites; so that we can avoid fraudulent situations. As the saying goes, prevention is better than cure.

In this article, let me walk you through the security protocols and processes followed at Razorpay, and which you should look for, too, every time you transact online.

online payment security architecture and information flow

1. TLS Encryption

Data security on e-commerce websites or an online payment system begins the moment a user lands on the site. The TLS Certificate tells users that the data transmitted between the web server and their browser is safe.

As a payment provider, Razorpay uses the highest assurance SSL certificate on its website which is the EV SSL (Extended Validity SSL) certificate.

Without TLS Encryption in place, all data sent over the Internet is unencrypted and is visible to anyone with the means and intent to intercept it. An easy way to check if the e-commerce websites you frequent are SSL certified is to look at the URL and see if it uses ‘http://’ or ‘https://’ protocol.

The additional ‘s’ signifies a secure e-payment system. You can also look for the padlock icon at the beginning of the URL. Modern web browsers in their race to make the Web secure by default are now following the opposite paradigm – mark HTTP sites as “insecure”.

2. PCI-DSS Compliance

The PCI Security Standards Council is a global organization that maintains and promotes compliance rules for managing cardholder data for all e-commerce websites and online payment systems.

The Payment Card Industry Data Security Standards (PCI-DSS) is in effect a set of policies that govern how sensitive cardholder information should be handled.

Fact: The PCI Security Standards Council was created as a joint initiative by the four major credit-card providers: American Express, Visa, MasterCard, and Discover, in the year 2004. Over the years, the PCI-DSS standard has become the guiding principle for online security across the globe.

For an e-commerce website or an online payment system to be PCI-DSS compliant they have to follow certain directives:

Maintain a secure network to process payments: This involves using robust firewalls which can protect against malicious security threats. Further, the website or payment gateway should not use default credentials like manufacturer provided PINs and passwords, and must allow customers to change this data as needed.

Ensure all data is encrypted during transmission: When cardholder data is transmitted online, it is imperative that it be encrypted. Razorpay encrypts all information you share using checkout via TLS (Transport Layer Security). This prevents data interception during transmission from your system to Razorpay.

Fact: On the Razorpay Payment Gateway, all the details entered by a user like their name, address, and credit/debit card information are used only to process and complete the order. Razorpay never stores sensitive information like CVV numbers, PINs etc.

Keep infrastructure secure: This directive involves keeping abreast of new PCI-DSS mandates and using updated software and spyware to protect against known software vulnerabilities, running regular system and software scans to ensure maximum data protection.

Restrict information access: An important part of securing online payments on e-commerce websites is restricting access to confidential information so that only authorized personnel will have access to cardholder data. Cardholder data must be protected at all times – both electronically and physically.

3. Tokenization

Tokenization is a process by which a 16-digit card number gets replaced by a digital identifier known as a ‘token’. This is done to ensure the safety of the original data while allowing payment gateways to securely access the cardholder data and initiate a secure payment.

Fact: Even if a website gets breached and the tokens stored are hacked, it is immensely difficult to reverse-engineer the actual card number from the token itself. To do this, one needs access to the logic used for tokenization, which is not publicly available.

Credit card tokenization helps e-commerce websites improve security, as it eliminates the need for storing credit card data, and reduces security breaches. For more on how tokenization works and impacts online payments, you can read our in-depth blog.

4. Two-Factor Authentication

Two Factor Authentication, aka 2FA, or two-step verification is an extra layer of security added by e-commerce websites to ensure a secure payment for a customer.

This is a customer-facing authentication process, mandated by regulatory bodies like RBI, in that the transaction is processed only after the user enters a detail that only they could know, or have at hand (like a physical token or a security key). Many banks and other e-payment gateways also use the 2FA for their own payment modes.

Fact: 2FA is not a newly-minted technology, but it has recently become the de-facto method of authentication in the digital age. In 2011, Google announced 2FA for heightening online security for its service. MSN and Yahoo followed suit.

When you use Net Banking for a transaction, you are first asked to enter your username and password. As a final confirmation, the bank sends you an OTP on your registered mobile number. This process has been mandated by the RBI, is divided into two levels of authentication:

What the user knows: In this step, users fill in their card/Net Banking details such as username and password. This helps the payment gateway recognize which bank the card belongs to.

What the user (and only the user) has: This step is known as ‘Authorization‘ and is done through the OTP/PIN/CVV. The bank (and the payment gateway) can then confirm that the request for payment is initiated by the rightful user.

5. Fraud Prevention

Apart from these mandatory protocols, most e-commerce websites and payment gateways have their own fraud and risk prevention systems. Big data analytics and machine learning play a huge role in devising these risk prevention and mitigation systems.

By delving into our customer’s data and analysing patterns, we at Razopray can discern between a ‘normal’ and a ‘suspicious’ transaction with credible accuracy. Apart from this, there is a lot that you as a customer can do to reduce the risk of fraud. 

Always remember that:  

– Anyone of importance will never ask for your card data/passwords up front. Banks and financial service providers have a safe protocol to gain admin access to an account if the need ever arises.

– Passwords are safer when you don’t write them down. Keep strong passwords that you can remember, change them frequently, and refrain from writing them down somewhere.

– You have the right to dispute suspicious charges on your card or accounts. Raise a chargeback request for any unidentified transaction on your card. You have a legal right to a resolution.

If you are building an e-commerce website, remember that fraud prevention requires that you follow all the above-mentioned protocols. Or find a payment gateway (hello there!) that has stringent security protocols already in place. We’re just a click of a button away!

GST Invoices : Create and Send GST-compliant Invoices with Razorpay

FeaturedRazorpay-GST-Invoices-Launch

With GST coming into effect in 2017, all Indian businesses are now required by law to create GST-compliant invoices – both on paper and electronically.

The number of e-invoices across the globe is on the rise (volume of e-invoices in 2016 was approx. $30 billion worldwide, with an average growth of 10-20% per year); as has the volume of e-retail, with global transactions crossing the $2.3 trillion mark in 2017.

This led the think tank at Razorpay to have another of our lightbulb moments – we already had the infrastructure for businesses to accept payments online.

Why not merge it with an invoicing feature so that accepting payments against a GST-compliant invoice becomes easier for everyone? This would automatically cut down the need for multiple software and make the payment process more seamless for everyone included.

So, we set to work. And the outcome is an intelligent software that provides automation of GST incorporation into invoicing – a feature that very few products in the market currently allow. As the Product Manager for this new feature, I am proud to introduce you to ‘Razorpay GST-compliant Payable Invoices‘.

gst invoicing software

Razorpay GST Invoices – How Do They Help?

Invoices have been in trend since the ancient times when merchants used clay tablets to keep a record of supply. In the simplest of terms, an invoice is a “document which states the supply of goods and services and forms the basis for a tax levy”.

GST-compliant invoices differ from the earlier VAT invoices by a few crucial factors:

  • It is important to mention details like GSTIN of the supplier and the customer, the place of supply, the HSN/SAC codes which are specific to the goods/services being sold.
  • The invoice needs to have a clear breakup of the tax levied. Just stating the value of tax is not enough; there needs to be a breakup of the CGST/SGST/IGST components.
  • It is mandatory to issue invoices for all registered supplies as not doing so will be considered an offence under the law.

For a B2B business, e-invoices are an effective way of managing compliance as well as saving costs. It is estimated that creating invoices online can help reduce operational costs by 60-80% vis-a-vis paper-based invoicing. However, this saving does not mean much if you spend money on multiple software for payment, accounting and for invoicing.

GST Sample Invoice

The Benefits of Using Razorpay GST Invoices

The Razorpay GST Invoices gives you access to a single powerful system- where you generate invoices and collect payments via the same software.

Ultimately, this helps your business reduce operational costs, reduce payment delay and delinquency, and manage cash flow in a better manner.

Most importantly, it adds an informational element to the transaction. The customer knows exactly what they are paying for upfront.

The hallmark of any good product is that it simplifies an industry pain point and helps improve business processes. Our invoicing feature helps you in the following ways:

  • You can create ‘Payable Invoices‘ for B2B or B2C transactions easily and accept payments via a single process. For monthly recurring invoices, you can use our APIs to create invoices in bulk.
  • Automatically include the GST breakup in your invoices. Since this is linked to the HSC/SAC codes of the supplied items, there is zero chance of error in levying taxes. Remember, GST tax rates vary according to the tax bracket of the item and correctly calculating tax is an important part of creating GST-compliant invoices.
  • Your customers can choose to pay from multiple payment options available on Razorpay or even use Virtual Accounts to make offline payments against the invoices. This enables customers to make instant payment – anywhere, any time – and helps businesses maintain regular cash flow for important tickets.
  • The ‘Dashboard Tracking’ option allows you to tally Account Receivable (outstanding amount) and the money collected/received from your Razorpay dashboard. There is no need for a separate accounting software for this.
  • In certain cases, your customers may want to make partial payments against an invoice. Let’s say they only wish to credit a small amount as an advance and expect to be able to pay the rest when they receive the goods. Razorpay GST Invoices come with a ‘Partial Payment’ option for such use cases.

Most importantly, you can use our software to create invoices even if you’re not registered under GST. Our intuitive and intelligent software can be used to create normal invoices without GST taxes that can be sent to your customers as proof of transaction.

Creating GST Invoices with Razorpay – The Process

At Razorpay, we have always been very particular about keeping the user flow/user experience simple, so that our users – whether they be a startup or an established business –  can use the product seamlessly. We have tried to do the same with the GST Invoices and I have detailed the process below.

For easy understanding, I have broken down the process into five steps from creation to reconciliation.

GST Invoice Generation

Step 1: Creation and Generation of GST Invoices

  • To create an invoice for a customer, begin by adding all the necessary details such as the GSTIN of the customer, PAN details, mobile phone, and email id.
  • Next, add item details of the goods/services sold to the customer. You can choose the HSN/SAC codes for the same, and add it to the invoice.
  • Once you add the item details and the place of supply, the GST will be automatically calculated by the software. The GST rate is linked to the item code and the place of supply; hence there is zero chance of error.

You can save the details for further use. This will help in the mass creation of invoices and faster creation of recurring invoices.

Step 2: Sharing of GST Invoices

  • The invoices are shared via email and SMS (you added these details in the first step).

Note: Even in legacy software, the sharing has to be done manually. However, Razorpay automates the process so that it is easier and faster.

Step 3: Payment

  • You can share your bank details over the same mail to facilitate online payments. This works for ‘Payable’ invoices that need to be paid online.

Step 4: Notification

  • If the invoice is paid online, you will receive notifications via the webhooks available on our site. If the payment is done via RTGS or NEFT, then it needs to be manually tallied.

Step 5: GST Reconciliation

  • Reconciliation for Razorpay GST invoices is done the same way as for any other invoice. You will have to account for the monthly ‘Account Receivables‘ and ‘Invoices Issued‘ and ensure that they both tally.

So there! The easiest invoicing solution for businesses is now in town – Razorpay GST- compliant Payable Invoices. Have you used it yet?

TDR, MDR and Other Payment Terms Simplified

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So, there I am. A newbie in the world of geeks, trying my best to understand terminology I wouldn’t have been caught dead using just a few days back.

Yes, it’s KT (knowledge transfer) time at Razorpay and as the new kid on the content block, I need my grey cells to absorb as much of the payment-related terms as they can.

And that’s when it hits me. If understanding these bywords is hard for someone who’s been in the fintech industry for a while, I wonder what others go through.

So, whether you are a startup enthusiast, SME owner, or just a curious Lannister who likes to know things, here’s a simplified introduction to payments and some of the oft-used terms in the industry. I hope you find them useful!

For the purpose of this blog, let’s take a look at a simple payment flow and the terms associated with this:

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1. Aggregator/Gateway

A payment gateway is a technology that allows merchants to accept online payments from their customers. PayPal, WorldPay, MIGS are some well-known examples of payment gateways.

Now, customers have their own preferred method of making a payment. If I was buying my favorite beverage on ChaiPoint, I might pay for it via NetBanking, while somebody else might prefer a wallet or UPI.

A payment aggregator brings together all these various modes of payment in a single interface, thus allowing the user the flexibility of choice.

2. Authentication

When you are dealing with high volumes of money on a daily basis, fraud and risk must be minimized. The authentication process is what helps payment gateways verify that you are who you say you are and prevent fraudulent transactions.

As mandated by the RBI, every online transaction in India undergoes two levels of authentication:

  • Verification of payment details: This helps the payment gateway recognize which bank your card belongs to so that they can process your payment faster.
  • Verification of user or Authorization: This is done through the OTP/PIN/CVV. When you enter these correctly, you essentially tell the bank (and the payment gateway) that you are the person using the payment mode, and have initiated the request for payment.

3. Acquiring/Issuing Bank

Now, these are two very similar-sounding terms which can get a bit confusing at first. So, listen closely! Simply put, an acquiring bank is a bank which facilitates the transaction through its gateway. And the issuing bank is the one used by the customer when making a transaction.

Let’s say that I used my HDFC credit card for a purchase at ChaiPoint. The transaction was processed via Razorpay. The issuing bank – which gave me my card – is, therefore, HDFC.

Now, Razorpay has to channel my money to ChaiPoint, and it does so via the gateway provided by SBI. Thus, the acquiring bank, in this case, will be SBI. In a sense, the acquiring bank is the partner bank for the payment gateway.

**These terms become even more important when we talk of issues like refunds, or card holder’s verification. The onus is on the issuing bank to verify the details entered by the cardholder and validate the transaction.

4. Merchant/Nodal Account

As defined by the RBI, a nodal account is an account created by an e-commerce, payment gateway, wallets, and aggregators specifically in order to accept digital payments. A merchant account is a temporary virtual account that a business creates with a payment gateway.

For instance, Razorpay has a nodal account for accepting and processing payments. When a merchant signs up with Razorpay to use our services, we create dedicated merchant accounts for them, which act as temporary vaults for payments.

Every payment made by a user is first directed to the Razorpay nodal account and managed through the specific merchant account.

Once the funds are deposited into the merchant account, the merchant is free to do as they please with it. So, they can effectively choose to send the whole amount to any of their business’ current accounts, or use it to make payments to their vendors and other associates using a feature like the Razorpay Route.

Most Indian banks offer the facility to open a current account. You can also create one through a private service provider.

Now, I know what you are wondering about and here’s the answer to your query – a merchant account and a business’ current account are indeed two separate entities.

Provided by your payment processor, you can use the merchant account only to accept digital payments from your customers, and disburse it to your vendors. Your current account, on the other hand, is where funds from both cash and card transactions are added, and which you use to pay salaries and bills.

5. Capture

To help you understand this term better, let’s analyze the anatomy of the transaction I made at ChaiPoint earlier.

The process began with me choosing to make a purchase online. I picked my favored mode of payment, entered the details, and confirmed the payment.

Voila! I see that the money has been debited from my HDFC account and credited to Razorpay’s nodal account. It now needs to reach ChaiPoint’s account and for this to happen, ChaiPoint has to ‘capture’ the payment so that Razorpay knows where to forward it to – almost like sending out a virtual Thank You, and a confirmation that the money indeed belongs to them.

And if ChaiPoint does not raise this ‘capture’ request within a stipulated time (5 days from the date of payment) then the amount is automatically refunded to my account.

6. Settlement

Once the transaction has been ‘captured’, the payment gateway i.e. Razorpay has to ‘settle’ the amount with ChaiPoint. Note that the money has still not been transferred to ChaiPoint’s merchant account. This is because even though the authorization, authentication, and capture (in most cases) happen in real time, the fund transfer follows a separate cycle.

Banks transfer the amount to Razorpay’s nodal account first, and this usually takes 1-2 days. Razorpay then sends it to ChaiPoint’s merchant account, and this happens 2-3 days after the transaction was first made. This is known as a settlement

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So far, we have looked at the flow of money from the user to the merchant and understood the terminologies involved. Now, let us understand the process of reversing a transaction (as in the image above) and the terms used in this flow.

7. Refunds

Refund is as refund does. Come on, we have all done this at least once in our lives!

A refund is, in essence, a reversal of a transaction made by a user. In cases where the user is not happy with the goods or services purchased, or if they have paid for said purchase without actually receiving anything, they can ask for their money to be refunded.

The process is complicated and if you have ever wondered about it, here’s a wonderful blog that should clear all your doubts.

**Refunds and chargebacks may seem similar, but there is a difference in their machinations. A refund is initiated by the merchant (with or without a request from the user) because they failed to provide the goods/services agreed upon. A chargeback is a customer asking the issuing bank to forcefully remove money from the merchant account because the charges levied by the merchant are not valid.

8. Chargeback

The world of online payments is not just APIs and code. Every once a while, it can read like an interesting whodunit. Imagine a scenario where a customer has been charged for transactions on his credit card, which he claims he did not make. Is this a case of amnesia? Sour grapes, or a shopping affair gone wrong? Or, an intent to defraud? Whoa!

When a customer contests a charge made on their card, the issuing bank immediately issues a ‘chargeback’.

Again, in the example that we have used till now, let’s assume I ask my issuing bank to initiate a chargeback against ChaiPoint for transactions billed to my credit card. ChaiPoint will now get its best Sherlocks on the case to prove the validity of these charges within 15 days, failing which I am entitled to get my money back. End of story.

While as a payment gateway Razorpay is not directly involved in initiating chargebacks and refunds, we are a part of this digital infrastructure and do our best to resolve such issues quickly. Ideally, a business would like to stay away from chargebacks because it causes both loss of inventory (if you did make a sale), as well as money.

All the charges levied on a digital transaction are also levied in case of a chargeback.

**The Fair Credit Billing Act of 1974 (USA) is widely considered as the genesis of chargebacks. In India, this would fall under the ambit of the Consumer Protection Act, 1986.

9. TDR/MDR/Bank Charges

As we have seen till now, there are a lot of steps and entities involved in a successful online transaction. Since all of these entities offer a service to the user, they are entitled to a small fee which we have detailed below:

Bank Charges: This is the amount that the acquiring bank charges for providing card payment services. This rate is in guidance with specifications provided by the RBI (Reserve Bank of India). One of the components included is the ‘Interchange’ which is a fee given by the acquiring bank to the issuing bank for their card transactions.

Processing Charges: Your payment aggregator might also have to pay certain fees to other players in the loop like online wallets or banks for processing payments of a specific type. They would include this in the amount they charge you for every successful transaction.

TDR – Transaction Discount Rate: This is the amount that the payment gateway charges the merchant while transferring the money to their merchant account. This is specified by the gateway itself and includes the above charges. In India, this is interchangeably used in common speech with MDR (Merchant Discount Rate).

In conclusion, TDR = Bank Charges + Processing Charges + Taxes

**Payment Aggregators also provide additional services and products for managing your payments and hence on a case-to-case basis, may charge an additional service component.

And there’s more, but that’s for another time!

This obviously is not the end of the terminologies, but this is where we will stop for now. The Indian payments industry has been evolving rapidly and payment gateways have become essential for all businesses; whether online or operating out of a brick-and-mortar space. Hopefully, these jargons have helped you understand our world better!

The Types of Payouts and How Businesses Can Simplify Them

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A structured financial management system is the pillar of any well-heeled business strategy. As much as a business would like to focus on great cash inflow, making payouts is also an equally crucial task.

And, leveraging out-of-the-box technology to streamline the process is what every business should do.

Let’s take a step back.

What is a payout?

A payout is a taxable payment made by a business to its stakeholders from the company’s current or retained earnings. In traditional business banking, the methods using which a company can process payouts are IMPS, NEFT, RTGS, and UPI.

What are the different types of payouts?

types of razorpayx payouts

Vendor payouts –  payments made by a business to a vendor (supplier) for the goods or services provided

Partner payouts – a business pays a commission to another business or a contractor for cross-selling products or services

Employee payouts – a business pays its employees for their services

Customer payouts – Cashback, rewards, and refunds made by a business to its customers

Common problems with payouts

Have you ever had to make a crucial payment to your vendor or customer, but you couldn’t process it because of fixed banking hours? Delayed payouts often lead to interrupted service. Not to mention, they’re just embarrassing.

But it can happen more often than not for many reasons.

  • You can only process payouts via NEFT and RTGS, and only within banking hours
  • Uploading contacts in bulk to make a bulk payout is very complicated because of complex file formats
  • There’s a hold-up upon adding a contact for a payout
  • You can’t verify the validity of a bank account before making a payout
  • Limitations on bulk payouts when made via UPI and IMPS
  • A low cap on TPS
  • No easy way to track and identify errors because of complicated and vague error codes
  • Reconciliation can be very difficult in the case of refunds and failed transactions

So, how can this process be made simple so that businesses don’t have to go through these setbacks? 

Let’s introduce to you, RazorpayX Payouts

razorpayx payouts

Imagine solving your payouts problem in just a matter of minutes, and further simplify all of your business banking operations! That’s exactly what RazorpayX Payouts can do for your business.

Whether you’re making a bulk payout or just a one-off, RazorpayX helps you move money seamlessly, without you having to worry about banking hours. RazorpayX Payouts is that one single platform that automates your business banking operations to such an extent that you don’t have to worry about making any manual effort.

How does RazorpayX simplify your payouts process?

  • Make payouts, disbursals, and refunds via UPI, IMPS, RTGS, and NEFT, at any time of the day, instantly
  • No hold-up upon adding a contact; transact immediately
  • Upload any number of contacts in one go, without dealing with confusing file formats
  • Create payouts in bulk via APIs or directly from the dashboard
  • Offer 24*7 instant refunds to your customers and vendors etc., without any manual intervention
  • Add multiple team members with access control and secure payments with 2-factor authentication
  • With intelligent error code mapping, identify errors without any trouble
  • Reconcile refunds and failed payments in ease
  • Track, automate, and accelerate money movements and make impactful business decisions

How to make a payout via RazorpayX?

You can make payouts on RazorpayX in five simple steps.

  1. Signup and activate RazorpayX account
  2. Add funds to your business account
  3. Create contact
  4. Add fund account to the contact
  5. Create payout

What kinds of payouts can RazorpayX handle?

Bulk payouts You can make your payouts in bulk, all at once. Simply upload all your contacts, sit back, and relax. RazorpayX will take care of all your outflow.

Payouts queue – If you need to make a payout and your account is low on funds, RazorpayX will queue your payouts that go over balance, and process your payouts when you add funds to your account.

Scheduled payouts (coming soon) We’re working on helping you schedule your payouts well in advance, so you don’t ever have to worry about delayed payouts.

Payouts, simplified!

Like we said before, making payouts are as important as cash inflow. Never worry about delinquent or delayed payouts ever again! Make fast, effective payouts to your customers, vendors, employees, and partners, and track all forms of money movement with RazorpayX.

24x7x365 Settlements Even on Holidays – Never Run Out of Cash

razorpay early settlements

What does a business need the most to scale and grow from one stage to the next? Customers? Of course! Employees? Sure. Continuous development of their offerings? The answers can be many. But one of the most important requirements is working capital. 

Working capital is required for numerous reasons. And it is important because easy access to money for a business’s day-to-day activities can help improve business convenience greatly. This was the primary reason behind the launch of our Early Settlements feature.

While the Early Settlements feature allowed businesses to receive funds on the same working day, there was still the need for them to get funds even on non-working days and in near real-time.

And as usual, we have become the first to solve this problem as well with 24x7x365 On Demand Early Settlements. With this feature update, businesses can now get their funds on any time of the day, any day of the year, even on weekends and bank holidays. And that too at a very nominal fee.

The feature will allow businesses to get easy and early access to their money, reducing their daily cash crunch for any kind of operational or non-operational needs, and allowing for better management of inventory and stock.

Currently, businesses can trigger “On-Demand Settlements” at any time from their Razorpay dashboard by clicking on “Settle Now” under the Settlements Tab. In case you don’t see the option, you can reach out to our support team or drop an email to capital.support@razorpay.com.

Continue reading further to understand how Razorpay Early Settlements work.

What is Razorpay Early Settlements?

With Early Settlements, you get access to your funds on the same day instead of your traditional or default settlement cycle. Razorpay Early Settlements helps you reduce your settlement period from T+2 days to within a few minutes (from the time of transaction), thus enabling your business to avoid cash-flow challenges and prepare better for working capital requirements. 

razorpay early settlements

A ready inflow of cash that will help you amplify your business, and meet day-to-day cash requirements without any hassles. 

What are the benefits of Early Settlements for your business?

  • Easy and early access to your money
  • Reduction in daily cash crunch and increased cash flows
  • Better management of inventory and stock
  • Payments to creditors and vendors without any delays

Can the settlements be done at any time of the day on any of the days?

Yes, they can. Early settlements can be rolled out on any day, even on holidays.

Razorpay levies a small fee that is deducted from the merchant’s settlement balance. This fee is primarily charged because Razorpay has to bear the subsequent cost of processing the early settlements by taking a loan from loan providers. This deduction takes place only if you decide to process the settlements instantly or on the same day.

Who is Early Settlements for?

It is technically for every business onboarded on Razorpay. Primarily in the last 6 months, we have seen 30% of e-commerce businesses that have gone live with Razorpay availing the Early Settlement functionalities to power their daily vendor payouts. This is followed by 17% of financial services businesses and 15% of IT services companies. For IT services, a majority of the users are freelance designers or web developers who want quick access to capital for the work they have done. 

We carry out risk checks (around refund rates, chargebacks, etc) before offering this feature to any business. To sum up, though we have seen a high traction among the industries mentioned above, businesses from almost every industry has availed Early Settlement and it has seen a high repeat rate.

To explore more about Early Settlements, click here.

Also read: Manage Working Capital Easily with 100% Visibility in Settlements

Business Continuity in Wake of COVID-19

The situation with COVID-19 is changing quickly. Many of you are looking to Razorpay to uphold your business continuity plan. Others are looking to us as a potential solution—you’ve found your business unexpectedly disrupted and are wondering if Razorpay can help you restore business continuity. 

We are taking this opportunity to provide more visibility and clarity into Razorpay’s business continuity strategy so you can be confident that we will be available throughout this disruption. 

Razorpay has had a business continuity plan in place and It is regularly reviewed and updated, both on a periodic cadence and as needed to address significant changes. 

Razorpay has implemented the following precautionary measures from our BCP plan, effective as of Monday, March 16, 2020.

  1. System availability: Our entire infrastructure, deployed on AWS, scales automatically based on demand and does not entail any human based server management
  2. Data protection: Razorpay has audited access management and approval workflows in place to ensure that your data is protected irrespective of our workforce being remote or not. Razorpay continues to be an ISO and PCI certified organisation and our BCP ensures that we stay that way
  3. Employee availability
    • We have enforced a work from home policy for all our employees to limit the spread of infection among our workforce
    • Virtual meetings and remote work-enabled collaboration tools have always been a part of our workforce’s DNA. So, we are confident that 100% remote work will not hamper our productivity in any way whatsoever
    • We have also started cross-training workers and established backup arrangements up to level 3, in case critical resources fall sick, to minimize disruptions

There is no mistaking the challenges of these times. We do not yet know with certainty when the greatest risks will be behind us. But we can assure you that we are prepared to ensure that your business continuity is not affected.

At the same time, we are taking proactive steps to ensure not only our services continue uninterrupted but our teams can continue to deliver newer products and features to supercharge your business.

For any further information regarding this or any help that Razorpay can provide in these testing times, please feel free to reach out to Razorpay Support.

Do visit our website for information on how our products can help you.restore business continuity.

ZopRent: Finding the Zen in Self-rental Business

Zoprent payments

ZopRent strives to provide a complete holiday experience to its customers. ZopRent is an affordable, efficient solution for the first mile, last mile, short distance and long-distance commute to its customers. 

The company aims to standardize service levels and deliverables to the customers and provide a unique platform to give all a level playing ground when we talk of service & deliverables.

We are currently present across 25+ cities in India with more than 10000+ vehicles registered on the platform. Avinash Mohanty, Head of Sales & Marketing, ZopRent

How ZopRent uses Razorpay

To uphold their vision successfully, one of the essential things in consideration was, of course, a flawless payment experience. Because traditional banks were a no-go when it came to diverse payment options. 

We wanted to offer our customers a seamless booking experience and its not possible without an excellent payment gateway which provides a lot of payment modes without any hassles. Banks were offering the same but did not give the option to pay through other methods – Thus Razorpay. Avinash Mohanty, Head of Sales & Marketing, ZopRent

After the integration with Razorpay, ZopRent saw a significant jump in payment-related data like payment source options, day-wise breakups, settlements, charges. 

Zoprent saw a spike in sales, fewer cancellations/no-shows, organized payment schedules, zero cash mishandling at HUBs, round the clock payment collection, prompt refunds, smooth integration of other vendors APIs and many more. 

Q&A with Avinash Mohanty, Head of Sales & Marketing, ZopRent

What is the idea behind the birth of ZopRent?

When you talk about mass mobility, India is still at a nascent stage. Getting people to reap maximum experience at the tap of a button is the fuel that keeps us going. 

How do you see your company growing in the coming years? 

We are using a unique Hybrid (An amalgamation of B2B & B2C) model, which will help the company to grow in the coming years. We have just launched our operations in Thailand with close to 2000+ vehicles across various HUBs, and are currently growing at 300% Y-O-Y and aim to expand to other geographies soon.

Why did you choose Razorpay? 

Excellent customer support, of course! 

The team that managed our queries were prompt and well versed with the product. This piqued the interest in Razorpay while constant vendor engagement and innovation have helped us to continue with them. ZopRent shares its passion with the world using Razorpay. 

We’re growing now, faster than ever, and we’re glad to have Razorpay on our side, taking care of our payments for us. The rest, as they say, is history. Avinash Mohanty, Head of Sales & Marketing, ZopRent

Explore Razorpay Payment Gateway for Your Business

Scale Your Business by Creating Offers with Razorpay

It has become a habit for consumers today to try and add vouchers when they order food or other items from websites and apps. It’s also common for them to add additional items to their carts to avail discounts on purchases over a certain threshold. 

The power of ‘offers’ is very evident in the present-day market and businesses from all verticals are directly or indirectly benefiting from it. 

Read this article to know more about offers and how you can create and run them to scale your business.

What is an offer?

An offer is an incentive you provide to a visitor or customer to make a purchase decision on your website or app. An offer can be in terms of discounts, free trials, free shipping, free additional products, etc. 

Offers, in general, are one of the best ways to invite customers on your platform and to retain the existing ones.

Why should businesses run offers?

Entrepreneurs running a business understand the importance of getting customer data. Furthermore, they know that the key to increasing the lifetime value of an existing customer is by gratifying them at certain points and getting them hooked to your product or service. 

Having a lucrative offer in place does wonders on all of these fronts. Here are a few points to support this:

  • By gratifying the user with a quality offer, you can get more data. A potential customer won’t mind sharing their contact number or their company name if you have something good to share 
  • Running a high-value offer for a limited period of time will help you attract more customers in a short span of time, hence assisting you to leverage your business’s growth 

For the latter part, to increase the lifetime value of your customer, planning the right offer at the right time can help businesses meet their targets. Here’s how:

  • By running a sale during a festive period when customers are on the lookout for the best price, you can hit two birds with one stone: clear your existing stock and get more eyeballs to your business
  • Gratifying the right set of people when they achieve a milestone like completing a year with your business ensures that the customer stays with you for longer

What are the different types of offers?

Most of the existing offers in the market are self-explanatory by their names. Here’s a list of the most popular offers:

  • Discounts on MRP
  • Certain amounts off on purchases over a threshold
  • Buy one get one free
  • One-month free trial
  • Free vouchers
  • Free credits 
  • Cashback offers
  • Free resources (white papers, ebooks, reports etc)

How you can run offers on Razorpay

With Razorpay, you can run offers by providing:

  • Instant discounts
  • Cashbacks
  • No-cost EMIs

Now that you know the prerequisites of offers and how they can help you scale your business, it’s time you know how you can run an offer right from the Razorpay dashboard. 

You can create, run and track an offer and its performance right from the Razorpay dashboard. Follow these simple steps to get started:

  • Login to your Razorpay dashboard and navigate to the ‘Offers’ tab and click on ‘Create New Offer’ on the top right corner

  • Fill in the required details 

Please note: The offer name is for the creator to keep a track of all the offers. It is for internal use only. Display text is the text that your customer (end-user) will see during checkout.

  • Under ‘Offer Type’, choose from the below-mentioned types depending on your requirement

  1. Instant: Offer will be applied as soon as a user selects it
  2. Cashback will be provided by the cashback provider as per the terms and conditions agreed with the creator
  3. Already Discounted is to be used by the creator to keep a track of already discounted items
  • Enter relevant details under the ‘Discount Type’ menu

  • Choose where you want to run your offer: payment method, card type, bank, network, limit on card usage and so on

  • Set the offer validity as per the dates you want to run the offer on

  • Check the offer overview and agree to the terms & conditions  before you make your offer live

  • You can track the offer by logging into your dashboard anytime

In conclusion 

There you have it! An offer is basically a type of high-quality incentive that can help you make the best of your business from time to time. What are you waiting for? Sign up on Razorpay and get started by creating your offers now! 

Chargeback Fraud Setting Back E-commerce Businesses: Is There a Way Out?

chargeback fraud ecommerce razorpay thirdwatch

Online e-commerce fraud needs no introduction. With the advent of modern technology, seamless payment modes and flexible regulations, processing online purchases is getting easier by the day.

However, this also has a dark side. It has become increasingly easier for cunning fraudsters to find loopholes in order to dupe online merchants. 

One such loophole is chargeback fraud, also popularly referred to as friendly fraud.

Unfortunately for us, there’s nothing friendly about friendly fraud.

What is chargeback fraud?

Chargeback fraud occurs when a consumer makes an online shopping purchase with their own credit card and then requests a chargeback from the issuing bank after receiving the purchased goods or services. 

Once approved, the chargeback cancels the financial transaction, and the consumer receives a refund of the money they spent. And the tricky part? When a chargeback occurs, the merchant is accountable, regardless of whatever measures they took to verify the transaction.

What can risk analysts do about chargeback fraud?

The primary goal for a risk analyst is to identify the source of a risky online payment and mitigate ways to overcome it. 

In order to do so, the analyst attempts to discover whether the order was placed by the authorized cardholder or a fraudster who’s using the legal cardholder’s information. 

Seems pretty straightforward, right? That’s the case for most scenarios, but not chargeback fraud.

For this small subsection, the authorized cardholder and the likely fraudster is the same person. This is known as friendly fraud and is nearly impossible to detect in a cash-driven market like India. 

Let’s now address some of the pain points that Indian business owners face while fighting chargeback fraud and the possible solutions that can be devised for the same. 

What are the types of chargebacks?

Though chargeback fraud is an umbrella of different activities, in order to mitigate it, it’s important to take a step back and evaluate the different disputes that a merchant can face from a chargeback. 

Actual fraud:

This is perhaps the most obvious reason for chargeback and the most common, too. A fraudulent customer used a legitimate cardholder’s information, made a purchase from a merchant and the merchant shipped the order to the fraudster. Upon reviewing their transaction statement, the authorized cardholder identifies a charge as illegitimate due to fraud and files a chargeback, requesting a refund.

Merchant error:

In this case, when the customer places an order on the website, the merchant either never ships out the order or ships out an item that was broken or different than described. This causes the frustrated customer to file for a chargeback compensation.

Friendly fraud:

A chargeback or friendly fraud is the reversal of payment made through debit/credit card by the user, which is debited directly from the bank account of the e-commerce seller. Chargeback enables the consumer to get his/her money back and protects them from fraudulent sellers online.

Under what cases can a consumer file for a chargeback?

There are numerous instances in which chargeback can be availed by the consumers from e-commerce seller. These instances include:  

  • The Quality of the product or services received were not as advertised by the seller at the time of purchase.
  • The consumer claims that he/she has fallen victim to identity theft or has not sanctioned the purchase.
  • There has been some mistake in the Billing amount, or there are issues regarding duplicate billing of a purchase made.
  • The product or service purchased were not received by the consumer.

How is chargeback misused?

Chargebacks are created to protect consumers from deceitful sellers online, however, this option for refund has been grossly misused by fraudsters in recent years. Criminals have found loopholes in the chargeback process and intentionally misuse the option to swindle e-commerce businesses of millions in revenue!

A person commits chargeback fraud by authorising a credit/debit card transaction, receiving the product or service, and later filing a false chargeback request to get the item for free. Common chargeback frauds suffered by e-commerce sellers include:  

  • The purchased product or service received is claimed to be undelivered
  • The original transaction authorised is claimed to be unauthorised
  • The genuine product or service received is claimed to be faulty or deficient

What is the extended impact of chargeback on businesses?

E-commerce sellers are hit hard by chargeback frauds in the past years with the increase in digital payments and approval of credit card purchases. Online sellers not only lose a big chunk of their revenue to chargeback frauds, but their reputation and goodwill is also damaged immensely. 

The fraudulent consumers not only defraud the seller with false chargebacks but also end up leaving erroneous reviews and ratings, further injuring the business. In many cases, the bank in which the seller has its account ends up blocking the seller’s account thinking they are not genuine.

What’s the way out?

There are numerous ways through which e-commerce sellers can fight chargeback frauds; the simplest being a clear return and refund policy on the website or app. The business must keep clear records of each transaction performed, and copies of every bill or invoice sent. 

A more advanced and reliable solution is to leverage technology. In the era of skyrocketing advancements and artificial intelligence, the smartest way to deal with chargeback frauds is to use fraud prevention tools that can keep a record of everything without affecting your time.

How can Razorpay Thirdwatch help you?

E-commerce fraud prevention tools like Razorpay Thirdwatch enable online platforms to detect multiple kinds of frauds and abuses, including chargeback fraud in real-time. 

With AI that utilises the power of natural language processing and predictive analysis, Thirdwatch is able to detect fraud by scanning each transaction on hundreds of variables.

Razorpay Thirdwatch is a powerhouse that quarantines fake or fraudulent transactions by marking them ‘red’ and approves genuine transactions by flagging them as ‘green’ transactions. It also evaluates and maps every device through which a transaction is made, its own ‘fingerprint’ to check future transactions made through it.

E-commerce merchants need to be aware of the different frauds that cause losses and employ intelligent measures to detect and prevent them. With Thirdwatch, business owners can now focus on their growth and leave the hard labour to us!

Install Razorpay Thirdwatch today and simplify e-commerce like never before!

What You Need to Know About Banking as a Service (BaaS)

banking as a service BaaS

Banking as a Service (BaaS) is yet another fintech innovation that is enabling bank and fintech collaborations. The tickler is, many of these innovations are confused for another.

We’re here today to clarify what Banking as a Service is and what it isn’t.

The banking sector has gone through somewhat of a metamorphosis in the last few years. With fintech players entering the market, this transformation has become unstoppable. Financial services are changing in a way that they’re creating new products, channels, partnerships, and opportunities. Banking as a Service plays a significant role here, at the core of it all.

What is Banking as a Service?

BaaS is an end-to-end approach that facilitates fintech companies and other third party organisations to connect with a bank’s system employing APIs.  This helps organisations build innovative financial services upon the provider bank’s regulated infrastructure while enabling open banking services. Banking as a service BaaS

How is Banking as a Service different from traditional banking?

To understand this, let’s break down the functions of a bank – holding money, remittance, and payment processing. For banks to support these functionalities, they need to put in a ton of investment and constitute the necessary infrastructure. 

The processes, along with the complex infrastructure, end up creating gridlocks. And these gridlocks are what have created an immense thought and application for fintech companies and non-bank organisations towards building financial services — partnering with banks instead of building these financial services from the ground up.

How does Banking as a Service work?

Banking as a Service allows third party organisations to draw off of the existing banking services through APIs that communicate between banks and third parties. These APIs allow the use of these banking services by fintech companies, programmers and developers, and other non-financial companies.

This allows them to build their own features as a layer on top of the existing banking services.  In simple words,

  1. Fintech company/individual pays to use BaaS
  2. Bank/financial institution which is a BaaS platform opens its APIs 
  3. Fintech company/individual builds innovative financial services using these APIs

Banking as a service BaaS

[ Also read: The New Age Ways of Business Banking ]

What are the factors influencing BaaS?

While fintech is growing and revolutionising the way financial services work today, there are a few key aspects that have led to the emergence of BaaS.

  • Banks are trying to catch up to the speed of fintech companies. Or, banks are partnering with fintech companies to innovate financial services
  • Startups and SMEs are starting to leverage easier and effective business banking
  • The digital transformation and mobile-first approach that has soared over the recent years has played a phenomenal role in influencing BaaS
  • Business architecture of banking is evolving to a much more modern system that is inclusive of newer tech and methodologies
  • Banking regulations have seen an evolution that has further promoted a healthy growth of industrialisation

How do businesses benefit from BaaS?

  • BaaS helps creates new sources of revenue for businesses by enabling cross-selling capabilities because of API driven facilities
  • With BaaS, businesses can compartmentalize business logic and data, and reduce time to build and ship apps
  • Businesses innovate much more by means of capitalizing on APIs of their own, along with third parties
  • Building products and services using API ecosystems can drastically increase Customer base

Banking as a Service vs open banking

The BaaS model is often confused with open banking since both models involve the use of APIs to communicate among banks and fintech companies. But in reality, both models serve completely different objectives. 

Banking as a Service: Businesses integrate complete banking services into their products

Open Banking: Businesses use only data for their products

Industry impact of Banking as a Service

BaaS has created quite a trend in the fintech industry. Many countries around the world have seen a rise in the latest fintech buzzword – neobanks. 

[ Suggested reading: What is a Neobank? Everything You Should Know ]

Neobanks help businesses manage their entire financial operations by providing more transparency and options, along with real-time capabilities. RazorpayX has enabled businesses like Cure.fit, MPL, Dunzo, and more, to make payouts at scale while keeping the costs low.

RazorpayX Current Accounts takes business banking further by including all standard banking services like debit cards, accounting statements, cheque books, and more.   

Many neobanks and challenger banks looking for an alternate source of revenue have also opened their doors for other non-financial companies to use their APIs. 

More than just creating a source of revenue, BaaS has also enabled legacy banks to grow a relationship with emergent as well as fintech giants. This further helps legacy banks to catch up to what some of the fintech companies are doing. 

Xperience the future of banking

Why Indian Startups Need to Change the Way They Bank

startup banking

Today, India is home to the third-largest startup ecosystem (9,300 tech startups) and an abode to the third-highest number of unicorns (companies with a valuation over $1 billion). So there’s no doubt that India is an epitome of innovation, thanks to startups building solutions aimed at solving locally relevant issues. But in this era of unicorns, soonicorns and IPOs, while it’s easier to get caught up in the stories of startup successes, startup failures are becoming more common.

Albeit other reasons for this failure — ‘no market’ need or the lack of alignment among founders and investors, the biggest and most tragic reason for some promising businesses to fail within the first year or two is primarily because of not knowing how they can best manage their financial challenges.

I have sailed the same ship and witnessed other entrepreneurs who did their due diligence, created reasonable financial projections and yet struggled to pay for unforeseen expenses. In the early stages of a business, even a relatively small expense that is not accounted for in the company’s budget can make it difficult to pay bills or make payroll.

It’s important for businesses to not only think beyond just sourcing working capital for operational and day-to-day expenses but also adopt a new-age banking solution that will help the business with entire money management within the organisation, in addition to borrowing working capital.

And, if you ask, why I can’t do all of these with my existing bank, ask yourself how many business hours has your team spent on manual labour, dealing with buggy software and complex infra systems? The most important factor for Indian businesses is to have issues resolved at the first point of contact, and to receive the same level of experience and service, over and over again.

A ‘one-size-fits-all’ traditional banking solution doesn’t suit the business banking needs of new-age businesses. Therefore, the lack of an intelligent tech infrastructure has led to the birth of neo-banks. These exist to simplify banking for businesses, accelerate and supercharge every aspect of a business’s financial operations — from accepting payments and managing cash flow to reconciling transactions and flexible payouts. In its nascent stage, neo-banks are taking over the fintech industry. Let’s understand this difference better.

  1. Access to daily financial reports and diligent insights is a norm for startups and SMEs. Unfortunately, this can take some time with traditional banks. Neo-banking is made for today’s DIY generation where everything is accessible at the customers’ fingertips. Businesses can generate reports based on specifications on their neo-banking dashboard, without banks’ intervention
  2. While traditional banks have restricted working hours, which means, businesses are required to work within the set banking hours, neobanks help businesses integrate in just a few days and enable a 24*7 money movement facility.
  3. It’s critical for businesses to have real-time visibility of their money movements. Waiting on a traditional bank facility to provide this information comes at the risk of losing valuable time and manpower. Using data in the right way and at the right time to inform your strategy is what neo-banking platforms are designed to look at.

This year will mark yet another significant progress in innovations in financial services. How neobanks manage obstacles like regulation and compliance, security, API integration, and how they will come together with traditional banks to build intelligent solutions will be an interesting watch for all of us in 2020.

This story was first published in The Economic Times.

 

A Summary of the Razorpay Thirdwatch Webinar

Razorpay Thirdwatch e-commerce webinar

We’re starting this article off on a happy note, basking in the success of Razorpay’s first e-commerce webinar! We had over 250 attendees from different parallels of the e-commerce industry coming together to discuss the state of today’s e-commerce fraud. For everyone who wants a second look at everything that went down and for those who want a first look because they missed it, here’s a summary of the Razorpay Thirdwatch webinar held last month.

About Razorpay Thirdwatch

Razorpay Thirdwatch is a state-of-the-art fraud detection tool with functionalities across different e-commerce parallels like Shopify, WooCommerce and Magento. Thirdwatch, with its AI-powered engine, helps merchants detect and profile fraudulent users, suspicious orders, incomplete addresses, etc. Thirdwatch also helps merchants flag suspicious orders and prevent Return-To-Origin and Cash-On-Delivery fraud.

About the speakers

Shashank Agarwal, Associate Director, Razorpay 

Shashank Agarwal is the founder of Thirdwatch and is currently the Associate Director at Razorpay. The brain behind the fraud detection solution, Shashank brought Thirdwatch into the business about 3 years ago. Thirdwatch is now a full-fledged fraud detection platform with features like Buyer Action, Address Parser feature, dashboard actions, etc. Razorpay acquired Thirdwatch in August 2019.

After having spent almost 4 years in the field of risk and fraud detection, Shashank addressed the problems and impact of fraud and RTO orders in today’s e-commerce industry. 

Dinesh Verma, Senior Director- Finance, Flipkart

Dinesh Verma is a risk industry veteran with an exclusive 5 years of experience heading Flipkart’s risk team. Complementing Shashank’s knowledge of fraud in micro and medium e-commerce businesses, Dinesh helped the audience get an inside look into risk and fraud in one of India’s biggest e-commerce players. 

Topics covered:

During the course of the webinar, we managed to scoop out some of the most enriching discussions between the two speakers. Here’s a condensed list of all the topics covered at the Razorpay Thirdwatch webinar.

ecommerce fraud webinar india razorpay thirdwatch trending topics

  • State of today’s e-commerce industry

E-Commerce today has evolved into a trillion-dollar market with demand and competition increasing every day. With the phenomenal rise, however, came a lot of rising problems as well. 

Fraud has increased 6-fold in the last 2 years and small companies are finding it increasingly difficult to get a cost-efficient solution in the market for fraud detection.

  • Growth of e-commerce in India vs globally

E-Commerce in India is definitely on an upward slope with thousands of businesses being introduced to the market every year. By 2034, believe it or not, Indian e-commerce is expected to surpass the US market!

However, what makes India primarily different from other countries’ e-commerce models is how cash-driven the economy is. Reports show that Cash-On-Delivery is still the preferred mode of payment for 60% of the consumers.

Due to this high preference of COD model, e-commerce merchants are faced with mounting levels of fraud, suspicious orders and impulse purchases.

This is a strong contrast to the Western market as their fraudulent activities do not occur in this way due to a strong online presence. Indian merchants must keep up with the changing times and constantly look for solutions to keep their profits afloat.

Indian merchants are faced with RTO rates as high as 30%, on average. Big players in India are faced with similar issues, too, and battle risks with a competent internal team.

  • Innovations in Indian e-commerce

With the changing market trends, it’s also important to keep an eye on risks that may occur. Retailers and merchants need to invest in fraud prevention techniques and also keep up with the pace of technology.

There is an increasing amount of new methods introduced to increase customer experience like voice search, Internet of Things (IoT), Augmented Reality, drone delivery, etc. 

Large Indian e-commerce players are expected to bring in e-commerce innovations like drone delivery in the next few years. These are expected to pique customer interest in purchasing and most importantly, retaining the purchase.

  • Share of RTO in an e-commerce business

COD suits the Indian mindset and can make up to 70 percent of Indian e-commerce businesses. With smaller players, customer credibility is also in question, which can further accelerate the need to introduce COD to their business.

RTO is when orders cannot be delivered and have to be shipped back to the warehouse. This puts a significant cost burden on e-commerce firms as they lose a lot of money in shipping it back and forth.

Here’s how e-commerce companies lose money in these orders:

  • Forward & reverse logistics
  • Blocked Inventory (Items stuck in transit)
  • Physical Quality check and re-packaging of returned items
  • Increased probability of damage to fragile items, and hence more money spent in shipping them
  • Operations cost in processing this order

Here’s what Thirdwatch noticed- in case of COD orders, the percentage of RTO orders can be as high as 30-40 percent!

Companies often perceive these costs as “mandatory” since there’s no proper solution set in place. Companies have little choice and fewer tools to prevent RTO — they just take it as a ‘cost of doing business’.

Unique solutions like Razorpay Thirdwatch help small players battle these problems at scale while keeping costs low.

  • Implications of fraud in Indian e-commerce

The real implication of e-commerce fraud is the cost incurred to the merchant. Every failed or retracted order causes a heavy cost to the merchant. Just like we specified earlier, the merchant is set to lose out on a lot due to forward and reverse logistics costs, operations costs, etc.

Another fact we found out is that the merchant will not be able to resell the same product after it is cancelled and he will have to bear the losses. 

  • How large vs. small businesses handle fraud

While both small and large companies are finding it difficult to deal with rising fraud, larger companies have it easier due to lack of funding problems.

On the other hand, smaller companies have issues of scaling and pricing when employing an exclusive solution. There are currently no solutions for small businesses other than Razorpay Thirdwatch, which helps you identify fraudulent orders in real-time.

  • Use of AI and ML in fraud detection and prevention

Machine Learning technology offers an attractive solution as it addresses all the challenges in preventing fraud — scale, complexity and changing patterns.

  • Employing Machine Learning for fraud detection

Catching digital frauds requires us to first gather the ‘Forensic Evidence’. Every user interaction leaves behind a subtle digital forensics trail like proxy IP, device ID, email address, time to order, etc. 

Machine learning models combine hundreds of such innocuous parameters, which are seemingly unrelated, to identify the patterns that indicate fraud. These patterns are later used to zero down on customers who perform a fraud across different websites and make it to the blacklist.

  • Enriching the data

Machine learning and natural language processing are used to differentiate between real and fake addresses. This is only the beginning. Transaction and user data can be enriched by adding context to it.

For example, by adding the price of the user’s phone device or categorizing an address as five stars to one star, we turn meaningless data (Phone model) into actionable information that increases the accuracy of the red or green flag that the machine learning models generate for every transaction.

  • Observing the user

Fraudsters are habitual in nature. They leave similar footprints on multiple sites. Network effects can be harnessed by pooling in anonymized data to predict and prevent fraudulent behaviour. This de-incentivises and penalises fraudulent behaviour across the ecosystem.

  • Tips for emerging startups
  1. Keep a regular check on your user database for any suspicious patterns
  2. Do not go for large-scale fraud detection (with a dedicated team) if you can’t afford it
  3. Do not be afraid to experiment with AI and ML to automate mundane tasks
  4. Avoid blacklisting users blindly. This can affect genuine customers as well
  5. Make sure to offer all modes for payment (and not block any) to ensure customer satisfaction
  6. Target Tier 2 and Tier 3 cities to maximise penetration of your product

That ends the summary for the Razorpay Thirdwatch webinar. We’ve also answered all the questions that you had asked us, make sure to check it out! Below is the webinar recording too, in case you’d like to revisit the session! Please feel free to get in touch with us if you have any questions for us.

Meanwhile, check out how Razorpay Thirdwatch is helping businesses bring their RTO percentage significantly here!

RazorpayX – How We Built a Startup in a Startup

RazorpayX

If you’re someone who’s interested in the Indian fintech industry, then you surely know of Razorpay. 

Razorpay’s extensive product suite caters to accepting, processing, and disbursing payments. Founded in 2014, the journey of Razorpay over the years has been incredible, powering disruptors of all scale. With product after product, we have been able to provide the best payment solutions for all sorts of business cases, no matter how complicated or straightforward.  

With over 800,000 merchants using Razorpay’s payment solutions, the biggest names in the market ride with us. Being the 7th employee at Razorpay, I’ve seen the company unfurl into a fintech superpower in India. And, I can’t be more proud to be a part of the overall growth and mission of the company.

Today, I’d like to shed some light on the most exciting product I’ve been working on – RazorpayX, our neobanking platform.

The story is interesting because it is not just about a great product that we are building, but also about how we came about it. 

In 2018, we announced our entry into business banking with RazorpayX in our flagship event, FTX.

You may wonder – why?

The gap in the system

How business banking is carried out is not the most efficient way to manage finances. With traditional business banking, businesses spend way too many hours on manual labor every month, while dealing with buggy software and complex infra systems. 

Several Razorpay merchants conveyed to us how their business banking experience is flawed, which got us thinking – we’ve already enhanced the payments experience. Who better to take business banking forward?

So, we validated the opportunity we had at hand and delved into some primary research.  We talked to 400+ merchants to understand their experience with business banking and drew insights from our conversations.

Next, we surveyed 1,500 CxOs and gathered

  • 64% of companies believe their payment service providers are best equipped to solve their payment challenges as opposed to banks
  • 10x as many companies polled believe payment service providers innovate better than banks
  • 36% of businesses believe manual dependency and reconciliation are the biggest challenges in their current money management

Our solution to bridging the gap – RazorpayX

Since we deal with many different payment flows, we wanted to create a whole new platform that would be dedicated only to building a product that would do away the challenges of business banking. We began to create a platform on which we can further build products that would ease the process challenges for businesses, like integrations with payroll software, and more.

During the early access, merchants were able to use the platform with virtual accounts. We created an entire API and dashboard payouts platform over a virtual account setup. In a few months, thousands of merchants started using it to make payouts at scale to vendors, customers, and even employees. 

From then to now, the platform has gone through major upgrades.

A few use-cases for RazorpayX

  1. Lending companies like Kissht and EarlySalary have been unable to disburse loans to their customers instantly owing to their dependencies on manual processes and cumbersome banking tech. With RazorpayX, these companies were able to disburse loans within seconds
  2. E-commerce companies that provide multiple payment options to their customers have traditionally not been able to process refunds for all methods with equal speed owing to an inconsistent customer experience. Cure.fit, Voylla.com, and other players in the market use RazorpayX to make instant refunds to their customers, irrespective of the payment mode (including CoD)
  3. A key component of making successful games is the process of ensuring winners get rewards, and fast. Dependencies on net-banking and manual methods were not optimal for progressive gaming companies. RazorpayX has helped companies like Mobile Premier League, RummyCulture, Pokersaints, and many more to transfer winnings immediately, and with ease

As we scaled, we realised current accounts would be integral to the product because of the growing demand to support higher volumes of transactions and superior customer experience. We wanted businesses to have the freedom to define their processes, unlike traditional current accounts.

During our event FTX 2.019, we announced RazorpayX’s expansion into current accounts, payroll, and corporate credit cards.

We built RazorpayX with Current Accounts in partnership with RBL bank and included all standard banking services like cheque book, debit card, and accounting statements. We merged these banking services along with powerful tech capabilities like API banking, approvals workflow, and insightful reports.

Next, we wanted to have a payroll system within RazorpayX’s platform. And, payroll is fragmented without a clear-cut solution, which got thinking – should we build? Should we buy? Or should we partner?

The more we thought, partnering made more sense, and we found the best company to partner with. Opfin, a payroll and HR management software company, turned out to be just right to automate the entire payroll process of a business, seamlessly.

Opfin does more than just payroll and fund transfers. It also manages tax filing and compliance via a unified platform, without having to hire any external vendors. 

Ok, current account, check.

Payroll, check.

What next?

We wanted to go just one step further. 

Corporate credit cards.

We’re partnering with banks and networks to build corporate credit cards from the ground up that offer immense flexibility with limited-time credit period and auto-repayment for businesses. These cards powered by our credit intelligence engine can be used to make payments towards Google Ads, Facebook Ads, AWS, Business Travel, and so much more.

So far and more

Even in early access, we’ve hit 3 billion annualised TPV serving thousands of merchants. We’re also processing over 2 lakh payouts every day, out of which 1 lakh is consumer loans.

We are perpetually endeavouring to make the RazorpayX platform more and more stable every day. We want to further grow the platform by building and integrating products that can extend to simplify business banking while providing the best possible experience to prove all businesses a viable alternative to traditional business banking.

We are constantly working towards reimagining and redefining business banking in India, and we’re looking forward to all of you joining us in our journey.