Behind the Pine Labs IPO

It’s hard to overstate how dramatically India’s payment habits have changed in just a few years. A decade ago, you needed cash for most purchases. Today, you can even buy chai from a roadside stall by scanning a QR code.

This shift didn't happen overnight. It was built on the shoulders of numerous startups which found their ways around myriad inconveniences — from simplifying merchant onboarding, to creating sound-box speakers — all of which come together in our world-beating payments system.

Out of an estimated 75–80 million merchants in India, more than 60% now accept digital payments in some form. That share is expected to rise to over 80% in the next few years. Underpinning this is a massive layer of infrastructure which helps merchants accept digital payments, which are integrated seamlessly with their billing systems.

Still, only a small fraction of those – around 11% in 2024 – use more advanced checkout devices, like card-swiping machines or specialized payment terminals. There’s still headroom to bring more merchants into that fold. In fact, this number is expected to double by 2029.

That is where Pine Labs comes in. The company has just filed the offer documents for its IPO, giving us the chance to explore a new, fascinating niche.

The niche Pine Labs plays in

Pine Labs has carved out a unique spot for itself: it provides omnichannel merchant payment solutions.

In plain terms, Pine Labs gives stores the tech they need to accept payments both in-store and online. It also offers them a toolbox of extras to help them grow. The company’s software ties together various payment methods — both online and offline — into one seamless system for the merchant. In fact, if you’ve shopped at a large retail chain in India, there’s a good chance Pine Labs handled that transaction behind the scenes. They provide the small, white machine that probably processed your payments.

This makes them different from many household-name payment players you might use regularly. Paytm and PhonePe, for example, are in a different business — they’re primarily consumer-facing apps that allow quick payments through UPI and online wallets. None of them, according to the consulting firm Redseer, has as integrated a payment suite as Pine Labs does.

Pine Labs’ evolution is linked to how India’s overall payment landscape evolved.

The company began in the early 2000s, supplying merchants those “point of sales” (POS) machines and the software behind them. By the mid-2010s, it had baked “affordability” tools into its POS software — allowing you to pay in installments. This helped merchants boost sales while giving consumers flexible payment options.

Then, Pine Labs ventured into issuing gift cards. In 2019 it acquired Qwikcilver, a leading gift card platform, to enable businesses to issue prepaid cards, loyalty cards and digital gift coupons — like the ones offered by Croma or Westside.

Once it cemented its in-store offerings, Pine Labs set its sights on the online realm. It built out its payment gateway capabilities, allowing merchants to use Pine for in-store, app, or website payments.

Its latest foray came in 2022–23, when the company began to expand to smaller merchants more directly. This was aided by its investment in Mosambee, a startup that worked on enabling payment infrastructure for mom-and-pop shops.

Pine Labs’ set up

Pine Labs has two main business lines — each targeting a different piece of the checkout value chain.

Digital infrastructure and transaction platform

First is its core merchant-facing payments business. This covers everything from its POS terminals in stores, to the software that processes transactions and links wi

h banks. It also processes online payments processing, and offers a suite of merchant tools.

On top of this, it layers some useful “value-added” services — currency conversion for foreign cards, an analytics dashboards for sales, “pay later” / EMI options, and more.

For all this, Pine Labs typically earns fees, charging merchants for its devices and software — either upfront, or as a service subscription. It also takes a tiny cut or commission on the transactions it processes.

Issuing and acquiring platform

But there’s more. If a retail brand offers you a gift card, there’s a good chance Pine Labs’ platform is powering it behind the scenes.

Pine Labs’ second business line allows retailers to issue their own gift cards, loyalty programs, and digital wallets — and even internal employee rewards. It gives them a cloud-based system to create and manage these offerings.

It charges ‘program fees’ for these services. For example, a company might pay Pine Labs to run its gift card program. On top of that, when these gift cards or loyalty points are later used for transactions, Pine may take a small fee per transaction as well.

Generally, Pine earns through long-term contracts with large businesses. In that sense, it’s not unlike software-as-a-service (SaaS) businesses. Growth comes from scale — by signing up more brands and banks, or increasing the volume of cards and points in circulation. This has worked for them very well — in FY 2024, Pine Labs was the market leader in India for gift card issuance by value.

Where could this narrative fall apart?

But this story isn’t without its risks. There are several challenges that could test its success story.

It’s not profitable (yet)

Despite its growth, Pine Labs hasn’t yet seen a full year of profits. The company has consistently recorded net losses in recent years — it’s only between March and December last year that it finally saw some profit. In fact, for most of this time, has also had negative operating cash flow. The core business hasn’t started consistently creating cash.

This isn’t unusual for a fast-growing tech company. But eventually, the company needs to chart a path to consistent profits. While its recent move towards profitability is good news, there’s no guarantee that it’ll last. Until then, Pine Labs is relying on invested funds to fuel its expansion — and that can’t go on indefinitely.

A few big clients matter a lot

While Pine is spread across millions of merchants, not all of them matter as much to its books. A significant chunk of Pine Labs’ revenue comes from just its top 10 customers — who contributed 35% of the company’s revenue. If even one or two of these big clients were to scale down or leave, it could make a noticeable dent in Pine’s business, and derail its move to profitability.

Don’t forget the regulatory risks

Pine Labs works in the fintech and payments sector. And the shadow of the RBI, as we’ve written before, hangs heavy over the industry. While the regulator is moving towards taking a softer touch, it still holds the power to change the fortunes of any payments business overnight. Its rules can change in the space of a day, and that might impact how Pine Labs operates or how much it can charge. We’ve already seen that happen with PayTm Payments Bank and Slice.

The Financial Picture

Finally, let’s break down Pine Labs’ key numbers.First, the positives.

According to its IPO filing, despite profits being somewhat elusive, Pine Labs’ revenue has been growing steadily. In 2024, the company logged revenues of about ₹1,208 crore. This was roughly a 24% jump from year prior, outpacing many traditional payment companies.

What drove this growth? Mainly, its core payments platform grew, as more merchants came on board and more transactions flowed through its systems. The issuing segment, on the other hand, was relatively flat — inching up only a couple of percentage points. The two business lines, clearly, are growing at very different speeds.

A lot of that revenue is spent on Pine Labs’ fixed and recurring costs.

The company has been investing heavily — in technology, sales expansion, and acquisitions — and those expenses can add up. The company’s "contribution margin" is improving — meaning that each transaction is profitable on a unit basis. But even as its unit economics gets better, its overall operational expenses remain high.

Nevertheless, the sheer volume of its business is impressive — and is expanding rapidly. By the end of 2024, the company had over 900,000 merchants onboard, boosted significantly by the smaller merchants it reached through its Mosambee acquisition. It handled a whopping ₹7.5 lakh crore in payment volume during just the first nine months of 2024.

The digital money flowing through Pine Labs’ systems, in short, is remarkable. But for all these strong metrics, the company doesn’t yet have a history of generating profits.

Conclusion

Pine Labs is at the centre of a huge growth opportunity. As payments in India continue to digitize, it is set to capture a lot of those money flows.

But there are countless companies that vie for the payments space — MSwipe, Ingenico, PhonePe, Razorpay, and many more. With just nine months of profit behind it, Pine Labs isn’t guaranteed to hold them off. If anything, payments infrastructure continues to become increasingly commoditized. Can investors realistically build a solid investment thesis for the sector?

What Pine Labs offers, right now, is promise. The surest path to success is building a defensible moat — and Pine Labs has a moat. What remains to be seen is if it can protect it.