Digital payments service provider Pine Labs has acquired application programming interface (API)-based infrastructure company Setu in a cash-and-stock deal worth $70-$75 million.
Setu, launched in 2018 by Sahil Kini and Nikhil Kumar, is a technology service provider in the account aggregator ecosystem, enabling users to securely share their financial data with banks and other financial institutions.
“Setu will make an incredible addition to the Pine Labs platform for a few reasons. Embedded financial services and open banking are going to be the way forward and the embedded finance market value is expected to exceed $138 billion by 2026 as APIs are intensifying the competitive fintech landscape,” said B Amrish Rau, CEO, Pine Labs.
Setu said it worked with account aggregators, which are non-banking financial companies operating under the NBFC-AA license 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 very important for India in the years to come and I am happy that they are relentlessly moving towards that goal and this partnership with Pine Labs will help them to accelerate,” said Nandan Nilekani, cofounder and chairman of Infosys Technologies Limited.
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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 democratization of technology will yield better results in making financial products accessible to all. Therefore, we have our APIs open for the developer community. Pine Labs’ network of merchants and issuers coupled with our API integration prowess will help achieve great results in managing personal finance, monitoring loans to predict default rates, and credit underwriting, among others,” Setu’s chief executive Kini said.
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. 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.
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