Payment Aggregators Face Revenue Drop After Online Gaming Ban

The Indian government has imposed a sudden ban on online real-money gaming (RMG), significantly impacting payment aggregators (PAs) in the sector. The ban, implemented within a span of 96 hours, could lead to a revenue drop of between 25-30 percent for prominent firms such as Cashfree, PhonePe, and Easebuzz during the current financial year. In absolute terms, Razorpay is expected to face a revenue decline of around 10 percent, according to industry sources.

This partnership between PAs and RMG firms was previously thriving, as the unique requirements of RMG companies necessitated close collaboration to develop tailored payment solutions. The primary goal was to ensure that customers received their winnings promptly, mirroring the seamless experience offered by the Unified Payments Interface (UPI). Transactions related to RMG, including wallet loading and winnings withdrawals, largely occur through UPI.

According to data from the National Payments Corporation of India (NPCI), the value of UPI transactions associated with gaming exceeded Rs 10,000 crore monthly, contributing to an annual turnover of around Rs 1.2 lakh crore. Approximately two-thirds of these transactions were attributed to RMG activities, with a monthly transaction volume nearing 400 million on the UPI platform, which as a whole processes over 19 billion transactions each month.

The financial implications for payment companies could be substantial, with estimates suggesting cumulative revenue of Rs 1,500 crore for the previous financial year. Despite the impending challenges, both Cashfree and Easebuzz assert that their diversified merchant portfolios will mitigate the impact of the RMG ban.

“Our merchant portfolio is highly diversified, with our largest volumes coming from sectors such as ecommerce, BFSI, travel, and tourism,” Cashfree stated. “Therefore, we do not expect the government’s ban to have any material impact on our revenues or payment volumes.”

Easebuzz echoed a similar sentiment, noting that RMG companies constitute less than 2 percent of its overall annual gross transaction value (GTV). The majority of its business derives from core economic sectors, with 50 percent of revenues coming from BFSI, 25 percent from retail, and 20 percent from education.

The innovation that propelled Cashfree’s success was its Payout API, launched in 2018, which facilitated bulk automatic payouts for RMG firms, processing several lakh transactions daily. These micro transactions typically average around Rs 20. Despite the challenges posed by the ban, some industry experts believe that the relationship between PAs and RMG firms was critical, particularly for processing large volumes of transactions efficiently.

While banks typically prefer to onboard merchants directly, they have often referred RMG merchants to payment aggregators. This trend arose from concerns about regulatory compliance and the potential burden of micro transactions on banking systems. Certain states, such as Tamil Nadu, had already enacted bans on RMG activities as early as 2022.

The gaming sector presented a lucrative opportunity for payment aggregators to monetize UPI payments. Under current regulations, banks and financial institutions are prohibited from charging commissions for UPI transactions. Instead, they often charge a platform fee to online merchants. Payment aggregators typically charge around 50 basis points, although larger merchants often negotiate lower fees.

The pay-out process was particularly lucrative, with PAs charging a flat fee of Re 1 per transaction. Given that pay-outs constituted almost a quarter of all RMG transactions, this fee translated into a payment commission of 5 percent, significantly higher than the 0.5 percent charged by banks for merchant transactions.

The rapid rise of PhonePe in the RMG payment processing space has been noteworthy. As the largest player in UPI transactions, PhonePe processes approximately 46 percent of all UPI transactions in India. The company launched its payment gateway service in 2023, capitalizing on a period when competitors like Razorpay and Paytm were under regulatory moratoriums on new merchant onboarding.

For the first quarter of FY 26, PhonePe’s payment aggregator division reported a gross merchandise value (GMV) of around Rs 13,000 crore, with RMG firms contributing approximately Rs 3,000 crore. An estimated 0.5 percent commission from RMG transactions suggests a potential revenue loss of around Rs 100 crore for the current fiscal year.

Despite these challenges, PhonePe’s overall financial health remains robust. The company reported revenue exceeding Rs 5,000 crore in FY 24, with a current annual run rate projected to be around Rs 7,500 crore.

For major players in the payment aggregation sector, it may take several years to recover from the financial impact of the RMG ban. The gaming sector has historically been one of the few areas generating consistent profits, which benefitted payment aggregators. The industry is already experiencing margin pressures as larger merchants demand lower commissions while banks increase their payment fees.

The true extent of the financial ramifications from the RMG ban will likely not be known until September 2026, when private companies are expected to submit their financial statements for FY 26 to the Registrar of Companies. The future of payment aggregators in the RMG space remains uncertain as they navigate these new regulatory challenges.