Instamojo withdraws from bidding for payments gateway.

Instamojo, a direct-to-consumer (D2C) technology platform, backed by Mastercard, has halted its plans to apply for a payment aggregator (PA) license after its initial application was rejected by the Reserve Bank of India (RBI) in September 2023. Instead, the company is focusing on enhancing the back-end infrastructure of its platform to support its clients, and is collaborating with licensed payment aggregators and banks to facilitate merchant transactions.

According to Sampad Swain, the co-founder of Instamojo, the company will no longer pursue a PA license, as it is now working directly with banks and regulated PA partners to handle financial transactions for merchants. This strategic shift comes after the company’s application for a PA license was turned down by the RBI due to failure to meet the eligibility criteria.

The company’s decision to forgo the PA license and partner with established financial institutions marks a change in its business model, as it aims to continue providing software solutions to attract more merchants to its platform. This approach reflects a shift towards a strategy similar to that of tech companies like Microsoft, rather than that of a traditional bank.

Following the RBI’s refusal to entertain its initial application, Instamojo ceased its payment gateway operations, leading to concerns among its merchants who were unable to access the funds from their sales. This decision also impacted the company’s profitability and led to a decline in business performance, with a reported 30-40% drop in business over the past few months.

The company has until September to reapply for a PA license. Despite facing challenges, Instamojo remains optimistic about the future and emphasizes the need for better collaboration between fintech platforms and regulatory bodies to facilitate innovation while ensuring compliance.

RBI had mandated payment gateways to obtain aggregator licenses to acquire merchants and offer digital payment solutions. Instamojo’s decision to opt-out of the PA bid reflects the evolving landscape of digital financial services and the growing importance of regulatory compliance in the fintech industry.

In conclusion, Instamojo’s shift away from pursuing a PA license reveals the complexities and challenges faced by fintech companies in navigating regulatory requirements while innovating and adapting to changing market demands. As the company continues to evolve its business model, it remains committed to providing comprehensive digital solutions for small businesses.