Pine Labs went public earlier this month amid a crowded IPO calendar, listing 9.5 per cent above its issue price. The company operates in a relatively unglamorous part of the vibrant Indian fintech space: providing payment technology including point-of-sales (POS) machines.
The group has ridden the wave of the country’s digital payments boom of nearly two decades, propelled by the launch of the Unified Payments Interface (UPI) and the turn towards cashless payments during the pandemic. Pine Labs is now valued at more than $3.1bn.
For this edition of the India Business Briefing Q&A, I sat down with Pine Labs chief executive Amrish Rau to talk about the company’s plans for the future and the scope and scale of fintech in India and abroad.
Note: This interview has been edited for length and clarity
Fintech has grown rather fast these past few years. Looking ahead, what do you see as the biggest opportunities in India and abroad?
After 25 years in the business, I still tell people that payment systems in India have covered less than 10 per cent of the opportunity. It might seem like we have reached a tipping point, but the reality is far from it. Bill payment transactions will continue to grow by 20-30 per cent every year. UPI transactions (digital payments) have been growing by 20-25 per cent year on year. In India, market penetration of payments and credit associated with it is going to be a big opportunity for many, many years.
Globally, many markets are now asking the same questions that the Indian market asked 10 years ago. Our fintech will go into markets such as south-east Asia and the Middle East. There are also many countries in Africa which are grappling with low-cost payment models. I think those will be very interesting areas to go after, not just for us but for fintech companies in general.
For India, is the opportunity in onboarding more customers or in expanding to other areas?
Very good question. According to our analysis, we have captured a true base of 150mn Indian customers. This is for fintech in general, not Pine Labs specifically.
So 150mn users are generating 20bn transactions? (NB: Official data suggests there are nearly 500mn users, although this figure does not account for actual usage).
Yes, the 80-20 rule applies. Power users are driving 80 per cent of UPI transactions. The number I mentioned, 150mn, are those who are truly onboarded and are using it a few times. We have got a long way to go to cover the entire population. Second, I think areas where digital payments can actually capture the opportunity will continuously expand.
Can you give me some examples of these areas?
One example is bill payments in the B2B space. Right now, most bill payment transactions are on the B2C side. But the minute it moves to B2B, even if the number of transactions is low, their value will be very high.
There are so many other sectors and use cases. You can’t, for example, do mobile phone recharges (top-ups) on the Bharat Bill Payment System now (an integrated bill payment system that is government owned). That’s an opportunity.
How does the technology and usage in India compare with the rest of the world?
I’ll give you one statistic. Fintech companies in India are doing more than twice the payment transactions than all the banking apps put together. That is not the case in many markets around the world. Outside of Brazil and China, there are no countries where you can say something of this sort is possible. I think this might be one of the few technology areas where we are further advanced than even China, both from a technology and a consumer adoption standpoint.
Why do you think consumer adoption has been relatively easy?
One thing that our regulators forced on us many years back was the second-factor confirmation for transactions — the OTP, or one-time password that is sent to the phone for every transaction. I know some of us find this very frustrating, but it was an important step because it made every transaction secure. Even a non-tech-savvy person has now understood that digital payments are secure, and there is no fear of the unknown. Therefore people are ready to experiment and adopt these conveniences, whether it is a rickshaw driver in Mumbai or the richest person in the country.
Your services are also offered by many others. How are you differentiating yourself from competitors such as a bank-owned POS machine, for example?
Most fintechs focus on the “finance” part but we see ourselves as a technology company. Therefore the things that are important to us are: what is your run time? What is your ruggedness, what is your scalability? How flexible do you remain? What’s your API infrastructure? Do you have a service-built architecture? We spend a lot of time ensuring that our platforms are open, accessible and can be very easily consumed. Not many businesses think of it in that fashion. They continue to think about the output, which is how many loans did we push out? This is our main line of business; it is not a bank’s main line of business.
You mentioned the factors that made payments a successful business in India. But the truth is also that it is an expensive business and a lot of marketing dollars were spent on getting people to adopt it.
Yes, that’s an interesting point. The growth of UPI and penetration of digital payments in India coincided with the zero-interest regime. That played a very important part. The ecosystem was also extremely supportive and we have to accept that there are many fintechs in India which have contributed significant dollars to the growth of digital payments in the country.
Therefore, it also stands to reason that growth will dry up in some time when the marketing money runs out.
No, because we have reached an inflection point when it comes to consumer adoption. I’m in that camp which says that once consumers see value in something, they’re never going back. Even if you apply some cost on it, they will not go back.
My biggest mistake
Selling my first company in 2016 is my biggest regret. It was a great exit, $150mn all cash, but I lost the opportunity to create something really big. Coming from a very middle-class background, at the time I had this mindset of making things safe, and so when the money came, I decided to go ahead and sell. However, I missed making an impact on the ecosystem. So this time around, in my second innings, I’m entirely focused on impact.
And what other areas do you see consumer interest in?
I think one of the areas I’m clearly seeing a trend in is around credit. Apart from loans, there are many products centred on bringing in affordability — it could be credit, instalment payments, subscription-based payments, guaranteed trade-ins, etc. That is going to be an interesting trend.
What will be the next big technology in payment systems?
I think three things. One is AI, and agentic payments are going to be a very big area. Second, the concept where payments and data will come together is going to be another big area. And third, I truly believe that stablecoins will have a material impact on payment systems, especially in markets such as the US.
What exactly does using AI in terms of agentic payments mean?
You could have an AI agent that conducts all your ecommerce-related searches, identification, etc. And if you trust it, you would in effect give that agent the power to also deal with the payment for transactions. It will read your messages, pick up your one-time password, apply it and complete the transaction. So if you (the industry) are going to embrace agentic commerce, you’ll have to find a way to embrace agentic payment. To be clear, agentic payments are easier than agentic commerce, in terms of the technology. If agentic commerce takes off, agentic payments will too.
What do Indian fintech companies bring to the table in global markets?
If I go into a new market and say “I’m from India and I’ll teach you AI”, nobody’s going to take me seriously. But if I go into a new market and say that I’m from India and I’ll teach you fintech, everybody around the world believes us. Because most countries have not seen anything like the workflows and unique architectures that have been created in India, and the scale at which we are operating. They feel very confident and comfortable to rely on a company like Pine Labs to deliver that solution for them because we’ve been there, done that.
What are the challenges in those markets?
The main challenge is that payments are a very homegrown industry, and there is always an old boys’ network in the payment space in any country that you go into.
Are these “old boys” banks?
It’s banks, retailers, regulators. There are schemes, networks, all kinds of relationships. To connect into that as an outsider is extremely difficult. So we have been taking a partnership approach. We have partnered with the biggest bank in Dubai, Philippines, Malaysia and even Singapore. That is the right approach for us in these markets.
What are the biggest risks that you foresee in your business?
We are luckily in a space where growth is never going to be a problem or a challenge. For regulators, there is no other option but to support what is happening in this ecosystem. The challenges, if any, are related to activities around security, data protection and ensuring that the platforms are stable and safe from cyber attacks.
After hours
I play tennis and cricket. Both my children played squash, my son played for India and was ranked fifth in Asia. My wife plays a lot of badminton. From Friday evening, the one thing I’m thinking about is what I’ll play during the weekend.
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