Mastercard and Times Internet-backed Instamojo has ceased its core payment aggregator business after the Reserve Bank of India returned its license application.
“As of Sept. 27, we have shut down the payment aggregator business for which you require a licence,” Chief Operating Officer Akash Gehani told BQ Prime. “Our application has been returned by the RBI. But we continue to function as a payments platform.”
The development was first reported by the Morning Context on Wednesday.
In September 2021, Instamojo applied for the payment aggregator licence to the Reserve Bank of India. But it did not fulfill the net-worth requirement at that point of time, Gehani said.
“There are different standards to calculate the net worth. The way we did it and the way RBI did it was different, and we did not align with that,” the co-founder said.
New PAs shall have a minimum net worth of Rs 15 crore at the time of application. They shall also attain a net worth of Rs 25 crore by the end of third financial year for the grant of authorisation, according to the RBI guidelines on regulation of payment aggregators and payment gateways from November 2020.
PAs that are not able to comply with the net-worth requirement within the stipulated time frame shall wind up payment aggregation business, according to the guidelines.
Since the company’s PA licence plans have gone down the tubes, it plans to execute this part of the business through partnerships.
“We have partnered with other licensed payment aggregators and have been working with them since October. We can’t share the names yet as there are talks with others too,” Gehani said.
The company maintains its stance that the regulator has “not rejected” its application but merely “returned” it. On being asked about future plans, Gehani said: “We have the option of going back and applying again but we’ll come to that later.”
Brewing TroublesEver since the shut down, merchants have been facing payment issues on Instamojo. While some have been unable to access the funds from their sales, others have been unable to give payment options to customers, impacting their business.
In a media statement, Instamojo said that all funds in its nodal accounts have been settled into the merchant accounts. It also started transitioning the merchants’ payment accounts to licensed PA partners.
“This transition required a fresh KYC, and 90% of our customers have accomplished the process, and their accounts have been successfully transitioned. Some merchants faced temporary delays in settling payments while the KYC was being processed, and now they are back in the business-as-usual mode,” the company said in the media statement.
BQ Prime had reported earlier that Instamojo, by late 2019, saw standalone payment gateway margin shrink, impacting profitability. But by 2021, it repositioned itself as a direct-to-consumer tech brand, also reporting month-on-month profitability.
In 2023, Instamojo reported a 150% year-on-year growth to become profitable with a 20-25% Ebitda margin. However, whether the company will be able to sustain this profitability just with the payment gateway business, is what remains to be seen.
