Pine Labs acquiring fintech infrastructure start-up Setu for $70-75 mn

Pine Labs, a merchant commerce platform, is acquiring Bengaluru-based Setu, an API (application programming interface) fintech start-up. This is the Pine Lab’s third acquisition this year.

Though the companies didn’t reveal the value of the transaction, it is $70-75 million, according to people familiar with the matter.

B Amrish Rau, chief executive officer (CEO) of Pine Labs, said Setu would add value to the Pine Labs platform in terms of “embedded” financial services and open banking.

“The embedded finance market value is expected to exceed $138 billion by 2026 as APIs are intensifying the competitive fintech landscape,” said Rau.

Pine Labs, backed by investors such as Sequoia Capital, PayPal, and Mastercard, competes with fintech companies such as BharatPe, Mswipe, Paytm, and Razorpay.

Rau said Setu was supporting innovation on the India stack (the project of creating a unified software platform to bring India’s population into the digital age) and its work on the UPI (unified payments interface) in the account aggregator space was moving the industry forward. 

Setu said it worked with account aggregators, which are non-banking financial companies operating under the NBFC-AA licence from the Reserve Bank of India. It enables consolidating the financial data of users at a single location and allows them to access services quickly. Account aggregators operate under the NITI Aayog’s consent-driven data-sharing framework called Data Empowerment and Protection Architecture (DEPA).

“The kind of infra Setu is building will be important for India in the years to come,” said Nandan Nilekani, co-founder of Infosys Technologies and founding architect of Aadhaar.

Setu said there was strong demand for its products. Its APIs are being used across industry verticals, including start-ups, retail enterprises, banks, insurance, and lending companies.

“We believe democratisation of technology will yield better results when it comes to making financial products accessible to all,” said Sahil Kini, co-founder and CEO at Setu.

“Pine Labs’ network of merchants and issuers, coupled with our API integration prowess, will help achieve great results in personal finance management, monitoring loans to predict default rates, and credit underwriting.”

Nikhil Kumar, Setu co-founder, said Aadhaar gave a digital identity to every Indian and that led to the opening of millions of bank accounts. Then UPI was built on top of its, which led to an increase in digital penetration across the country.

Kumar said the identity infrastructure reduced the cost of onboarding and UPI infrastructure brought down the cost of transactions.

“When you combine these two things, you will be able to reimagine financial products digitally at a lower cost,” said Kumar. “So the half a billion UPI transacting users become a target or addressable market for us in the next three to five years.”

Pine Labs, which was valued at about $5 billion in a funding round early this year, has been active in M&A (mergers and acquisitions). In April it made a majority investment in Mosambee, an end-to-end payment solution provider in India. This valued Mosambee at more than $100 million. In February, it acquired Mumbai-based online payments startup Qfix, for an undisclosed sum.

Last year, Pine Labs acquired Fave, Southeast Asia’s consumer fintech platform, in a deal valued at over $45 million.