Pine Labs has acquired Bengaluru-based API (application programming interface) fintech startup Setu in its third acquisition this year, as it looks to build a play in the embedded financial services space. The deal, pegged at about $70-$75 million, has a mix of cash and equity components. Embedded finance or embedded banking basically allows a traditionally non-financial service, product, or technology to integrate a financial service into the user experience, making transactions simpler.

“Payments are going more and more embedded. Payment transactions are happening on Instagram, on YouTube, at railway stations... effectively payments have become almost frictionless, embedded in our day to day journey. The future will mean that even data, identity, consumer information, even that will be made available in a friction less manner. And even all of those journeys will have to start getting embedded. That is an area in which Setu has done tremendous amount of work,” says B Amrish Rau, CEO at Pine Labs, while explaining the rationale behind the acquisition.

The objective is to bring embedded finance and embedded payments together, said Rau. “This could be a very powerful proposition out from Pine Labs in the marketplace and that’s effectively what we are building for... we are building for open banking infrastructure, open API infrastructure and the combination between Plural and Setu will become extremely powerful. That being the background, we have gone ahead and made this acquisition,” said Rau at a virtual press briefing on Thursday.

Pine Labs had launched Plural, a payment processing platform last year. Rau claims that Plural today already handles payment volumes to the tune of about ₹2,000 crore per month.

The embedded finance market value is expected to exceed $138 billion by 2026 as APIs are intensifying the competitive fintech landscape. Financial APIs are crucial to embedded finance. They enable data connections between financial institution accounts, fintech companies and non-financial companies.

Setu enables a secured access to banking systems via APIs. The firm offers open APIs across bills, savings, credit and payments. Setu claims that its APIs and software is used by a spate of businesses to effectively enable onboarding, payments, deposits and lending for their end customers. Setu’s APIs are being used across diverse industry verticals today including startups, retail enterprises, banks, insurance, and lending companies. The firm’s existing and emerging use cases span multiple digital ecosystems, from Aadhaar eSign to BBPS bill payment, payment collection integration via WhatsApp and FASTag payment collection, Pine Labs says in a release.

“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, credit underwriting, and several other areas,” says Sahil Kini, co-founder and CEO at Setu.

The deal will also create synergies from a distribution standpoint, Rau says. "When you think of Setu, Setu has largely been an online only distribution model... Pine Labs on the other hand is a (physically) reach out to an organisation, reach out to businesses model, and that’s where we will have a lot of synergies from the distribution standpoint. Our ambition is to build India’s largest fintech and if I don’t have that muscle, I think I am missing a massive opportunity and that’s why I feel that Setu can come in and complete our offerings, especially in the API, digital and online first,” he explains.

In February, Pine Labs pocketed $150 million from Alpha Wave Global in a mix of primary and secondary funding, valuing the startup at over $5 billion. The investment was followed by another $50 million infused by Vitruvian Partners.

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