Interviewed By Neeti Aggarwal
Pine Labs, the erstwhile India focused merchant and payment platform company, is now shifting its attention to Southeast Asia. Amrish Rau, CEO at Pine Labs, shares the details of his strategic plans for the upcoming expansion
Pine Labs, a leading merchant commerce platform in India, eyes to expand its business in Southeast Asia. It will launch pay later instalment service in five new markets starting with Thailand and the Philippines in February 2021 followed by Vietnam, Singapore, and Indonesia. Pine Labs currently processes $30 billion annual payments, serving about 150,000 merchants across 450,000 network points in India, Southeast Asia and the Middle East.
Amrish Rau said Pine Labs is the leader in offline buy now, pay later (BNPL) services with 95% market share in India. This service will expand the business for merchants and will connect banks, fintechs, payment gateways and device makers to a rapidly growing financing alternative. The company’s payment technology was able to consolidate multiple credit issuers on a single platform which will be relevant in Southeast Asia. The company experienced a 70% growth year-on-year (YoY) in ‘pay later’ products in India.
Rau said the focus would be to increase the credit access to a greater number of customers, meet their changing digital payment needs, expand the distribution channels of merchants in India, and replicate its services across the five new markets.
Mastercard is an investor and partner of Pine Labs. Sandeep Malhotra, executive vice president of products and innovation for the Asia Pacific at Mastercard, said this service will have a wider scope than the current card-linked instalments in the market as it will enable payments via credit and debit cards, as well as bank accounts across in-store and online merchants. He expects a 15% increase in customer spending, higher ticket prices, less cart abandonment, and more revenues for merchants and lenders.
Below is the edited transcript of the interview:
Neeti Aggarwal (NA): What is your strategy towards geographical expansion in Southeast Asia? And how do you expand your product portfolio?
Amrish Rau (AR): Pine Labs takes pride in bringing technology capabilities to build cloud-based platforms that enable payment solutions. Our focus has been purely on the technology and the platform that we have built for payment processing. The platform did exceedingly well in India over the last 10 years in making payments solutions not just for the enterprise merchants but also to the small parts of the country.
Today, we power almost 35 different credit issuers, debit and credit cards, non-banking financial companies (NBFC), and others to deliver pay later services at about 150,000 merchant outlets all across India, covering about 100 different brands. Now, there's a lot of technology that goes behind it to create the solution offering. What we have seen is this technology, which we have developed here in India, is very relevant to Southeast Asia and the Middle Eastern markets and at one point will be relevant somewhere else. Now, we at Pine Labs believe that we can take this technology and apply that in the Southeast Asian markets.
Mastercard has presence in many markets. We want to work with Mastercard, their banking and retail partners to take our technology into those countries. So, our approach in geographic expansion is, “Let's take our payment technology which we have developed, and then distribute it into new markets where this product can be very relevant.”
Today, when you go to Malaysia, Singapore, and Thailand, all of them still have 7 -10 different terminals at merchant locations. Pine Labs is one of the players in the world which can consolidate seven to eight terminals into one single terminal to deliver everything from a loyalty programme to a BNPL or even simply do acquirer-related transaction processing. That's been at the centre of how we have tried to expand with our products across different geographies.
Pine Labs in partnership with Mastercard will launch BNPL products in Southeast Asia in 2021
NA: India is your key market where you have a stronghold and you expanded in Malaysia with the BNPL products. What about other markets in Southeast Asia? How are you expanding to those markets?
AR: This is a very convenient partnership. We had a presence in Malaysia, a market-leading position in the Indian market, and we were ready to go into the Southeast Asian markets. Now, if we are alone, trying to grow those markets would take us a long time. Partnering with Mastercard gives us direct access to the existing banking infrastructure and the merchant community. Our entry into those markets is really on the back of this partnership.
NA: With your partnership with Pine Labs, how are you leveraging it for growth in Asia? And how significant is the partnership for you as a company?
Sandeep Malhotra (SM): We believe in a partnership model. That's how these payment ecosystems are created. BNPL is a very important trend. If you look at what's happening around the world, that's one category that is increasing daily. It's less about credit, it's more about cash flow management. We are trying to position that and Pine Labs is a leader in that space.
Pine Labs makes payments as well as this BNPL which they've launched in India. We’re working closely with them to create a solution jointly where we bring in our assets and assets from Pine Labs and take them to many of the markets. We're launching in two Southeast Asian markets, in Thailand and the Philippines, in the first quarter and then we're going to roll it out in three other markets in Indonesia, Vietnam and Singapore.
We want to give consumers a choice at the point of interaction. When they're about to buy an item, what will they do? Right at that point, whether it's an offline purchase and in-store, or online, so that's where we are bringing in the capabilities of Mastercard and Pine Labs.
Generally, these instalments happen with a credit card. What we're trying to do is we will offer a choice that the consumer can use their credit and debit cards, or even bank account to do that. The channel could be online or offline as well. We bring in the network where we are connected to millions of merchants through the Mastercard network. It's available at those merchants whether domestic or cross border. So that's the beauty of that solution. We bring in the two assets together.
We see this BNPL category to touch close to $800 billion. A Deutsche Bank study showed that by 2023, it's going to be $800 billion, which is close to 13% of e-commerce volume. The consumers are saying that they will spend more if they're given this option. The ticket size will go up 15% more if that option is available to them. So, it results in higher ticket prices, less cart abandonment, and then more revenue for the merchants and the lenders.
The payment processing technology consolidates multiple issuers on a single platform and will be available across offline and online channels
NA: There are other market players in India and Southeast Asia that are offering pay later as a service. How do you competitively differentiate yourself to be successful? What is so unique about your particular offering?
AR: In the Indian market, we have 95% market share when it comes to BNPL services being delivered in the offline space. The market that we are losing would only be because an existing bank is doing some of those services. The only reason why we have that market share is because of the way we put our technology stack together – it allows credit issuers to join the platform.
We have BNPL available at 150,000 merchants all across India. When a Samsung phone is being bought on BNPL using let’s say the ICICI Bank’s credit card, the payment will be converted into six instalments. The bigger story unfolding in India is that on the small back streets of Jaipur, a trader selling a Samsung phone, as long as he has a Pine Labs terminal, he can deliver the same equated monthly instalment (EMI) pay later capabilities. We have partnered with brands, credit issuers and merchants and taken this all across India.
When you go into other markets outside of India, invariably what happens is one bank with its own point of sale (POS) is doing these. Ours is the only technology which allows 25-40 different banks and financial institutions to come together on one single platform. All of them can deliver pay later services on the Pine Labs platform. We think this is a market opportunity which we have to capture very fast.
NA: Sandeep, how is Mastercard expanding into new revenue streams? What initiatives and financing products are helping you to improve your margins?
SM: BNPL is consumer financing. We don't take the balance sheet risk. We work with financial institutions or fintechs that would take the balance sheet risk. We try to get into a better consumer experience and choice. The consumer is interested in a financing option at the point of interaction and we will make that choice enabled. BNPL flow is where you can buy in full or in parts.
It will increase the credit access to customers to bring more sectors into the fold and grow the distribution channels
NA: Amrish, what are the innovations or features that have contributed to your profits? How are you building up your margins right now?
AR: This is the year of the pandemic. We focused on helping the small traders of India to get back to their feet and do their business a lot better. At this point profits have taken a back seat as far as Pine Labs is concerned. Our number one focus is to bring the buyer or the consumer back into the small stores. We are focusing a lot on data and loyalty, creating credit as an option for merchants and their consumers. Because eventually if our traders and retailers can sell more, we will in turn gain out of it. It's all about enabling small businesses to grow their footprint.
One of the things we saw at the height of the pandemic was footfalls dropped by about 40%. Digital payments doubled, so the requirements of the merchants when it comes to technology services were also very high. We’ve focused on addressing the merchant’s demands. Recently, there was an announcement from the Reserve Bank of India about contactless payments going from INR2000 to INR5000 ($27.16 to $67.89). We enabled it exactly 10 minutes after that announcement went out.
NA: How will your expansion plans in the next couple of years or so improve your margins?
AR: The way this pay later programme works is we need to focus on three areas. One is the number of consumers which have access to credit based on their debit and credit cards. In India, there are about 800 million debit cards but those who have a credit associated with it could be as low as 20 to 25 million. We are working with banks and financial institutions in India, Southeast Asia, Malaysia and now we will be going to the Philippines and Thailand so they can understand how they could safely open credit lines to the consumers so that BNPL will be available to them. We target to increase the consumer numbers first.
In India, BNPL service catered to electronics, mobile phones and consumer durables. Our intention is to have regular offers for apparel and travel. We think there's a big market opportunity in two-wheelers. Instead of going in for an auto loan somebody can easily go for BNPL on the two-wheeler category. There were 150,000 merchants and we have just covered only about 20% of the market. We have to cover more locations so that this is truly available all across India.
The distribution to merchants is the third area that we are working on. This formula works in all markets. The same is working today in Malaysia and we would like to replicate that in five new markets.
NA: How exactly are you measuring the success of your company? What is your biggest benchmark to indicate growth?
AR: All of these areas which I covered - merchants and distributions as well as the various product features and functionalities that we built for the merchants. We track down how many banks and financial institutions per terminal or device we served. So, one is merchant outlets, the second is products, features and functionalities that we are building and then obviously it comes down to the number of transactions and other such parameters.
NA: Do you already have presence in all these markets in Southeast Asia?
AR: Not in these five markets yet. We have presence in Malaysia and Singapore.
NA: What is your outlook and plans for 2021?
SM: Digital is a habit that has been created. Three out of the four people are saying they're not going to go back to the old ways so that's here to stay. A lot of focus on digital products will continue. Getting into BNPL, helping the small businesses, cross border travel will take some time. I think maybe somewhere around mid to end of next year.
The staycations are more of a new way of life. So how do you introduce those things? We were trying to have a programme called ‘pay now stay later’, so similar to play now pay later. We're trying to do some of those new things and bring in the digital offer as the world is becoming digital. We’re working to address our digital consumers and how do we serve the domestic first and then cross border travel later. That’s our focus.
AR: Our focus is to be on these three areas. One is contactless, second is online payments, and the third is QR payments. All three of them are right now absolutely exploding. We have seen that contactless payment in India has gone up from 2% to 12% in all transaction volumes. So contactless is going to be the new way of making payments. If contactless continues to grow at this pace, it is going to seriously compete with the Unified Payments Interface (UPI) transactions because actually at the point of transaction the contactless experience is a lot quicker. So contactless is our number one focus. Second is the online payment because lots of transactions have moved online. We want to continue to grow the online side. And then lastly, we deploy QR codes for every merchant.
NA: Can you also share some benchmarks or numbers that indicate your growth in BNPL products in the last 12 months?
AR: On a year-on-year (YoY) basis, BNPL grew 70% in India. Out of which very interestingly the small markets, outside of what we call as large format retail or retailers in a mall or big location, that business has grown 100% YoY. The small business market has grown by about 20% YoY. In total, BNPL posted a 70% to 75% YoY growth. In November, it recorded close to INR2500 crore ($339 million) in revenues.
NA: You have 95% market share in offline BNPL. What about BNPL service in your digital transactions?
AR: The BNPL online transaction is only through Amazon and Flipkart and they are processed on their own. Outside of Flipkart and Amazon not many e-commerce companies are doing BNPL. So that is definitely the market we are going after.
NA: Thank you.