The Birth of Pine Labs in the Face of Currency Chaos

Remember the time post the pandemic somewhere between the mid to late 2020s when suddenly everyone wanted a piece of the market? Companies went crazy with the IPO spree since raising capital via equity appeared pretty lucrative. Cut to late 2022, and all that buzz has dried off and seems to have come to an end.

When we came across the news that Pine Labs is planning for an IPO, we couldn’t help but get coverage on the same. This article pens down Pine Labs’ manoeuvre on the IPO situation, what it has done so far and where it is headed.  

In a world where banking was plagued by the chaos of multiple currencies, disorder, and unpredictability, it was clear that a change was needed. Enter Pine Labs, the game-changer that transformed the payment industry with its innovative solution - ATMs and debit cards for banking customers. But even with the advent of ATMs in India, the widespread use of cards for physical transactions among merchants was still a challenge. Join us as we delve into the story of Pine Labs, the company that dared to tackle these concerns and revolutionise the way we bank.

Established in 1998, Pine Labs has evolved into a leading Indian merchant platform company that offers financing solutions and advanced retail transaction technology to both merchants and their customers. The company was originally created to provide a simple payment and loyalty program based on card usage.

In the early days, Pine Labs concentrated on providing advanced card-based payment and loyalty solutions to the retail petroleum sector. However, in 2009, the company decided to expand its horizons and venture into the mainstream payments space, with the goal of providing merchants with PoS machine solutions that connect them to banks and other financial services. Pine Labs established partnerships with banks and payment aggregators and made sure that its PoS machines could handle various forms of digital payments.

By 2012, the company had evolved and transformed its payment technology offerings. Pine Labs emerged as a pioneer of smart, cloud-based PoS platforms that aimed to minimise costs and increase revenue for retailers. Its strategic alliances with major banks and brands enabled the company to offer multiple services to merchants through its platform.

Pine Labs through the years

Pine Labs has undergone significant evolution since its establishment, becoming a comprehensive merchant platform that provides a range of solutions, including payment processing, risk management, data analytics, merchant financing and insurance, marketing offers, cashback programs, unified billing, and more. The company has built partnerships with over 21 financial institutions and 100 brands, which has enabled it to offer a wide array of services to its customers.

In 2017, Pine Labs expanded its reach globally by establishing a presence in Malaysia in partnership with CIMB Bank. Today, the company is dedicated to creating the world's most robust and comprehensive merchant platform, providing technology and financial solutions to meet the evolving needs of modern merchants.

Pine Labs provides mobile point-of-sale machines that enable merchants to accept payments made by credit or debit cards. It offers a range of services such as Instant EMI, Cashback Programs, PaybyPoints, Loyalty Solutions, e-Wallet, Dynamic Currency Conversion, Gift Solutions, and Targeted Promotions.

In 2021, Pine Labs launched its merchant commerce platform called Plural, expanding into the payment gateway sector and positioning itself as a direct competitor against well-established companies like PayU-Billdesk, CCAvenue, Paytm, and Razorpay. The platform was launched with three products, Plural Gateway, Plural Checkout, and Plural Console, with the aim of serving the company's client base of over 5 lakh merchants.

Pine Labs primarily generates revenue through the sale of its products, such as PoS payment devices, and commissions from the sale of its services. The company also earns income through interest on fixed deposits and current investments.

Pine Labs has a widespread network with over 150,000 merchants across 3700+ cities in India and Malaysia. Its point-of-sale (PoS) machines support transactions made with cards, QR codes, or phone number billing. Additionally, the company offers various services, such as working capital loans and loyalty programs through PinePerks. With a focus on expanding its offerings, Pine Labs is working on developing solutions such as Buy Now Pay Later, invoice management, gifting, and e-commerce.

The company has partnerships with well-known names such as Apple, Google Pay, Samsung, and Sony. Pine Labs has received substantial investment from a number of investors, including Sequoia India, PayPal, Temasek, Actis Capital, Altimeter Capital, Madison India Capital, and Sofina, having raised $310.8 million in total.

Over the years, Pine Labs has seen steady growth in its revenue, rising year over year. In the fiscal year of 2017, the company reported revenue of ₹195.16 crore, and by the fiscal year of 2021, it had grown to approximately ₹800 crore. Despite this growth, Pine Labs has struggled with profitability, posting losses in recent years after initially posting profits in the fiscal year of 2017. Currently, the company is working to reduce these losses and continue its growth trajectory.

Pine Labs' expenses rose from ₹1001.98 crore in FY20 to ₹1025 crore in FY21. Despite its efforts to reduce its losses, Pine Labs saw a significant increase of 164% in its losses, from ₹93.68 crore in FY20 to ₹247.85 crore in FY21. In the last fiscal year, for every rupee of revenue earned, the company incurred an expenditure of ₹1.41.

The growth of digital payments in India has captured the attention of both international organisations and tech giants. The advancements in the Indian digital payments industry, including the use of QR codes, the implementation of a Unified Payments Interface (UPI), and the ability to make point-of-sale transactions using mobile-like devices, have left the world impressed.

Although digital payments are at its heart, the rise of the Unified Payments Interface (UPI) has made monetisation more difficult. It has become the largest method for peer-to-merchant transactions with no merchant discount rate (MDR) compared to debit or credit card transactions. In response, Pine Labs has made strategic acquisitions of fintech startups.

Pine Labs has been on an acquisition spree, making several strategic purchases in recent years to expand its offerings. Here's a chronological rundown of the company's key acquisitions:

Pine Labs’ Shopping Spree

The acquisition of Qwikcilver in March 2019 for $110 million turbocharged the company's gift and prepaid card business. Within a year, Pine Labs' revenue from this vertical increased 4.5 times to approximately $65 million, accounting for nearly half of the company's total revenue of $130 million.

Pine Labs operates its gift card program management services through a software-as-a-service (SaaS) model, charging a subscription fee and a separate commission for card distribution. The company also earns interest from money loaded on cards in escrow accounts and revenue from unredeemed cards or other prepaid services.

Pine Labs' gift card vertical has a customer base of approximately 250 merchants and 1,100 companies, including the Tata Group, McDonald's, Google, Amazon, and several Indian private-sector banks. Qwikcilver is also driving Pine Labs' global expansion. The company recently entered international markets such as Australia, New Zealand, Singapore, and the UAE. Australian supermarket giant Woolworths Group is the latest large customer to use Pine Labs' services.

Additionally, gift cards have been a key driver of Pine Labs' growth, accounting for one-third of the company's revenue. According to the Reserve Bank of India, the firm is the largest issuer of prepaid payment instruments (PPIs) in India, having issued over 185 million gift and loyalty cards as of November 2022. As Pine Labs continues to grow and diversify its offerings, the company is poised to become a major player in the fintech industry.

Navigating Through Adversity

Pine Labs is a significant player in the Indian market, and its closest competitor is the US$7.5 billion fintech company, Razorpay. In March 2020, Pine Labs had a significant year, with its revenues surging 80% to ₹1,054 crore and the appointment of a new CEO, Amrish Rau.

In July 2020, Pine Labs made a strategic move into Southeast Asia by acquiring a stake in Singapore-based discounts-and-smart-payments application Fave for US$45 million and restructuring its operations. Pine Labs bundled all its offerings into three key business segments: digital payments, issuing cards, and consumer apps.

However, the onset of the pandemic affected the company's momentum. In the year ending March 2021, Pine Labs posted a 31% drop in revenues at ₹726 crore and a loss of ₹248 crore. Despite these challenges, Pine Labs managed to bounce back with a 40% increase in its revenue from operations to ₹1,017 crore in the year ending March 2022.

While the company's losses remained stable at ₹256 crore, the company suffered a net outflow of cash from operating activity by ₹203 crore from inflows of ₹22 crore in the previous year.

Strategic Acquisitions and Rebounding Revenues

Before the shortage of funding for late-stage startups, Pine Labs managed to secure approximately $200 million in two rounds of investment from Alpha Wave in early 2022. In February of that year, Pine Labs acquired Qfix for a cash price of $3.2 million. Qfix offers smart invoicing and workflow management solutions to over 5,000 educational institutions in India. This acquisition helped strengthen Pine Labs' merchant payment and commerce platform.

Then, in April 2022, Pine Labs bought a 76% stake in Mosambee for around $60 million, increasing the end-to-end payment solution provider's valuation to over $100 million. This acquisition gave Pine Labs a 75-80% market share in the large enterprise-merchant segment. Mosambee is crucial for Pine Labs' plans for storefront digitisation and penetration into the micro, small, and medium enterprise (MSME) merchant space.

Mosambee's takeover of buy-now-pay-later fintech Benow also strengthens Pine Labs' pay-later business. Pine Labs claims to have around 1 million merchants on its platform, and despite having revenues that are not quite on par with the segment leaders, the company operates efficiently. Its revenue grew by 31% to around $13 million in the year ending March 2022, with a profit of $1.5 million. The company was also profitable during the two pandemic-hit years.

In June of 2022, Pine Labs made a significant acquisition with the purchase of Setu, a four-year-old fintech company, for a sum of US$75 million. It specialises in embedded finance and offers APIs to banks and other fintechs to facilitate sharing of financial data and account aggregation services. These services encompass bill payments, savings, credit monitoring, and digital payments.

Pine Labs aims to strengthen its online payment and lending business with this acquisition. Before the takeover, Setu had already secured investment from notable investment firms like Alpha Wave Capital and Lightspeed Venture Partners and raised around US$18 million.

Pine Labs' online payment gateway, Plural, launched in 2021 to compete with major players like Razorpay, PayU's Billdesk, and CCAvenue, will be further enhanced by the addition of Setu. Over the past 18 months, Plural has recorded a monthly transaction rate of around US$300-400 million in processed dollars on the platform. Plural also received an account-aggregator licence in July of 2022.

Pine Labs, now a soon-to-be public fintech company, recently acquired Saluto Wellness, an enterprise loyalty program management company, on January 23rd. Saluto was founded by Siva Kumar and Anoop Nambiar, former executives from the employee-rewards and facilities-management companies Sodexo. Saluto offers a proprietary prepaid card platform to companies seeking to engage employees and channel partners with preloaded rewards cards. This move is part of Pine Labs' strategy to diversify its revenue streams by providing a range of software and value-added services. It's their fourth acquisition in the past year.

The acquisition will bring employee rewards management and customer engagement to Pine Labs' issuing business, just before the company's planned IPO, with a target valuation of $6 billion. Saluto's revenue from operations rose 15 times to around $6 million in the year ending March 2022, which was its best performance since its establishment in 2017.

In August 2022, Pine Labs' closest competitor, Razorpay, entered the offline payment space with the US$200 million acquisition of PoS company Ezetap. This company serves over 500,000 touchpoints compared to Pine Labs' over a million and processes over $10 billion in annual transactions.

Pine Labs, a major player in the Indian payments space, has expanded its reach in Southeast Asia and the United Arab Emirates. The company, which generated approximately 90% of its revenue in India, has set up multiple subsidiaries in countries such as Thailand, Indonesia, Singapore, and the UAE. 

With a strong portfolio of services, Pine Labs has established several regional partnerships to showcase its offerings. One notable partnership was with Singapore-based insurance firm Singlife, where Pine Labs provided its Qwikcilver-powered cards and QwikGiftAPI product to the company.

In the bargain, Pine Labs teamed up with global payments company 2C2P to expand its BNPL offerings across six Southeast Asian markets. They recently announced their entry into the UAE through a partnership with Kalyan Jewellers. Despite these ventures, Pine Labs has yet to set a date for its public debut. Nevertheless, the company is poised for growth, with its loyalty business as its key differentiator.

Pine Labs' Competition: A Close Second

It is worth noting that Pine Labs' closest comparison in terms of offerings is the Jack Dorsey-led Block Inc. This company bundles its financial services, including digital payments, PoS terminals, loyalty and gift programs, etc. Block Inc. is listed on the Nasdaq with a market cap of US$50 billion and recorded revenues of US$17 billion in 2021.

Pine Labs' closest competitor in India is the fintech Razorpay, whose payment division saw a 76% growth in revenue to reach ₹1,485 crore in the year ended March 2022. On the other hand, Pine Labs experienced a 40% increase in its revenue from operations to reach ₹1,017 crore during the same period, with stable losses at around ₹256 crore.

Other offline payment players include Innoviti Technologies and Mswipe Technologies, although on a smaller scale. Innoviti had a revenue of ₹74 crore for the fiscal year ended March 2022, while Mswipe reported a top line of ₹241 crore.

It remains to be seen how Pine Labs will fare in the highly competitive payments industry. Still, with its expanding presence in Southeast Asia and the UAE, the company is well-positioned for growth and success.

The Bottom Line

Pine Labs has been working tirelessly behind the scenes for the past year, preparing for the highly-anticipated initial public offering (IPO). Although the company has been tight-lipped about a specific date, the buzz surrounding the IPO has only grown stronger.

As Pine Labs sets out on its journey of growth and expansion, it is well aware of the challenges ahead. However, the company's success lies in its ability to capitalise on its most prized asset - its loyalty business. This is where Pine Labs holds a distinct advantage over its competitors and holds the key to unlocking its full potential.

Stay tuned, as we will be closely following the developments at Pine Labs and reporting on any updates as they happen. The future looks bright for this trailblazer of the industry, and we can't wait to see what's next! Look out for an article on the IPO, as in when it happens.