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Take Rates: Small Cuts, Big Bucks!

Problem Statement:

Razorpay processed INR 10 crore in card transactions through its gateway in the previous financial year. What could their revenue most likely be? Options: 0, 10 Thousand, 10 Lacs, 10 Crore.

Solution:

Payment aggregators like Razorpay earn their revenue through a take rate, which is a small percentage charged on every transaction processed through their platform. The typical industry take rate for payment gateways ranges between 0.5% and 2%. This means that while Razorpay processed INR 10 crore in total card transactions last year, their revenue would only be a fraction of that amount, based on their take rate.


The industry average take rate ranges from 0.5% to 2%. Based on this, Razorpay's revenue would likely be around INR 5 lakhs - 20 lakhs, hence the closest answer would be 10 lacs.

The take rate model is prominent across many industries, where platforms act as intermediaries for transactions. From e-commerce to ride-hailing and hospitality services, platforms charge a percentage on every transaction, creating a steady revenue stream.

Applications in Other Industries

The take rate model is widely used across various industries where platforms facilitate transactions or services, earning a percentage from each transaction:

Amazon: When sellers use Amazon’s marketplace to sell their products, Amazon charges a percentage of each sale as a fee, which varies by category.
Uber: For every ride booked, Uber takes a commission from the total fare paid by the customer, typically ranging from 15% to 30%.
Airbnb: Airbnb charges both hosts and guests a percentage fee for every booking made through its platform. The host fee ranges between 3% to 5%, while guests are charged up to 14%.
Swiggy/Zomato: These platforms take a percentage cut from each order placed through their apps, typically ranging between 10% and 25%, depending on agreements with restaurants.

Takeaway

The Take Rate Model emphasizes the importance of scale. While the percentage earned on each transaction is relatively small, platforms like Razorpay, Uber, and Amazon can generate significant revenue due to the high volume of transactions they process. This is the essence of the volume game: platforms focus on increasing the number of transactions they facilitate, making even small percentages add up to massive revenue over time. It shows how and transaction volume are critical in take-rate-driven businesses.

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