There’s more consolidation in the payments space in the offing, and it’s becoming evident that standalone payment gateways will find it difficult to survive in a low margin business. E-commerce marketplace and SAAS major Infibeam has entered into a memorandum of association with Avenues (India), which runs the payment gateway business CC Avenue; following a deal in May last year where Infibeam put in Rs 45 crore into Avenues, the company has now put in an additional Rs 150 crore, for 7.5% share in the company. Around 3.85% had been already held in the company by an Infibeam subsidiary. It is moving towards an acquisition, adding that “Subsequently, amalgamation of CC Avenue into Infibeam by issuance of fresh shares subject to due diligence and regulatory approvals.” At Rs 150 crore for 7.5%, the deal values CC Avenue at Rs 2000 crore.

Some thoughts on this deal:

1. Vertical integration for Infibeam: CC Avenue has historically been one of India’s largest payment gateway providers, proving an important interconnect between merchants and banks; Avenues allows over 100,000 merchants to collect payments, typically using debit and credit cards. Infibeam had over 66,000 merchants by the end of Q3FY17, and the acquisition will allow the company to add its own payment gateway services to its mix of offerings to merchants, along with its SAAS platform BuildABazaar. This is a form of vertical integration for Infibeam, which says: “With payment platform of CC Avenues, Infibeam is a unique one-stop solution provider in the e-commerce segment providing Purchases to Payments solutions under one roof”…”Integration of Payment platform with logistic & warehousing, ad and domain registry along with data centre and data analytics, the value added services provided by Infibeam makes a full circle in providing all services under one roof to the customers.”

2. Payment gateway business has been tricky for a few years: While payment gateways had typically been marketplaces, they relied heavily on relationships with banks and using that has a hook for acquiring merchants. Margins in the payments gateway business have been under stress for a while now, especially after Naspers owned PayU began upping the ante a few years ago, initially dropping merchant charges, but also offering additional services like setting up of online stores, SMS invoicing, among several others. Others like CitrusPay and RazorPay also entered the scene.

3. Collecting payments will not be a “payment gateway” monopoly anymore: Like I mentioned earlier, the payment gateway business had been largely dependent on the relationships with banks: would a bank connect with a particular payment gateway or not? What has happened in the last year, with the launch of Unified Payments Interface, which is built on top of the IMPS payments system, is that bank interconnect is expected to work seamlessly, and anyone can receive money. Though payment gateways like CC Avenue have a role to play – it has integrated UPI, and will still be needed to offer customers multiple options of transacting – it is unlikely to be as critical as it once was, and thus a reduction in its pricing power. Additionally, “CC Avenue will soon have Bharat Bill Payments Systems which will facilitate all bill payments for utilities and services among others.”

4. Avenues had tried not being “just a payment gateway”: Collecting payments became a commodity business, and the writing was on the wall. CC Avenue founder Vishwas Patel, one of the sharpest operators in the payments space, saw it coming and CC Avenue responded by trying to become a merchant service provider: launching storefronts, marketing solutions and analytics, invoicing solutions, social media based payment collection, among others.