ANALYSIS Pine Labs IPO: Is the Indian payments promise fading?

This steep haircut may be raising one question: if one of India’s marquee payments plays cannot sustain its earlier valuation, is the broader Indian payments-fintech bubble starting to deflate?

A noteworthy valuation reset

The numbers speak for themselves.

Pine Labs’ IPO price band of Rs 210-Rs 221 per share values the company at approximately Rs 25,400 crore (about $2.9 billion) at the upper end.

When you compare that with its private valuation of over $5 billion in 2022, the reduction does not appear trivial, as it reflects a roughly 40-50 percent cut in value expectations.

Moreover, the size of the fresh issue component was trimmed from around Rs 2,600 crore in the DRHP to Rs 2,080 crore. In its prospectus, Pine Labs had even warned that it had incurred net losses of Rs 145.48 crore in FY25 and was still navigating cash-flow pressures.

That such a well-backed fintech firm is coming to market with smaller ambitions may be pointing towards more than a company-specific setback. It actually maybe a symptom of how the broader dynamics maybe playing out in the Indian payments ecosystem.

It’s not just Pine Labs

Across the Indian payments-fintech landscape, several signs seem to be pointing to chill winds.

For example, several news reports including that of Moneycontrol, say several payment companies have struggled to raise money at higher valuations in recent quarters.

Players such as BharatPe and Cred, once among the most aggressively funded fintechs, have not raised new equity rounds in over a year, according to Tracxn data. The funding slowdown reflects a broader shift in investor priorities, with those who once chased rapid scale and user acquisition are now insisting on clear paths to profitability and cash flow visibility before committing capital.

Cred, for instance, closed a downround earlier in 2025, reportedly raising funds at a lower valuation than its previous $6 billion private round, signaling the pressure even marquee fintechs face amid cooling investor appetite.

The broader funding slowdown is evident across India’s fintech landscape, as private market deal activity in the segment declined by over 60 percent year-on-year in FY25, data from Venture Intelligence shows.

This may have prompted several mid-sized players, especially in payments, lending tech, and digital wealth, to explore mergers, stake sales, or strategic partnerships to stay afloat.

Similarly, the unit economics of India’s payments sector is showing signs of strain.

According to a CareEdge Research document dated October 13, while digital payment volumes through UPI and card networks have grown sharply, most firms are struggling to convert that growth into profit as regulatory caps on merchant discount rates (MDR) limit their revenue potential. The report noted that even large payment companies face pressure on margins because of high merchant acquisition and servicing costs.

A recent PwC India Payments Handbook 2025–2030 analysis also observed that the cost of customer acquisition in digital payments remains elevated, eroding profitability despite strong transaction growth. The study highlighted that the “zero-MDR regime” has significantly restricted monetisation opportunities, particularly for small-ticket transactions.

In addition, tighter compliance norms introduced by the Reserve Bank of India and competition from global players such as Worldline and Stripe are further compressing margins across the ecosystem, the report said. Worldline’s India business has been up for sale since May 2025, but a buyer is yet to be in sight.

These overlapping pressures may have made it harder for even well-capitalised firms to maintain profitability despite expanding transaction volumes.

Structural headwinds in the payments business

Several structural factors may also be contributing to the reset in India’s payments industry, according to analysts and sector reports.

First, the zero-MDR (merchant discount rate) regime on UPI transactions and regulatory curbs on fees may have squeezed the revenue pool for payment service providers. Funding inflow into payments gathered moss after zero MDR because payments as a business was seen as volume accretive, thereby compensating for the likely MDR loss. In short, the narrative was to capture as much market share and customers to use their QRs and/or the POS machines. The narrative played out well during the initial post pandemic phases and the gross revenues justified for the lofty billion dollar plus valuations demanded by payment firms. But as is with any maturity pattern, from mid-2023, when private equity investors started looking beneath the surface, the game fizzled out - everyone was growing the top line, but the bottom line was thin and continues to remain so.

Second, and somewhat in anticipating of this pressure from investors, many payment companies expanded aggressively between 2019–2023 into spaces such as merchant acquisition, technology integration, and hardware deployment. In other words, they were ready to burn cash in expectation of some light at the end of tunnel. A PwC’s report highlighted that “rapid scale-up in infrastructure without corresponding monetisation has extended payback periods and put pressure on cash flows.” Investors, the report added, are now more cautious about models with long gestation periods for profitability.

Meanwhile, growth started plateauing in domestic transaction volumes and several players had to look outwards for new business. Overseas markets became the next leg of expansion. A CareEdge April 13, 2025, added that Indian fintech firms exploring foreign markets “face fresh hurdles in compliance, localisation, and market readiness,” often resulting in slower payback and thinner margins. Pine Labs, for instance, has earmarked part of its IPO proceeds for international expansion, according to its draft red herring prospectus.

That said, despite the overheads of business being steep, on a per transaction basis, markets such as the UK and UAE, favourites for Indian payments companies, offered a gross margin of 2.5‑4 percent, as against 1 percent at home.

Moreover, the payments business model itself is evolving as an EY India puts it. A report titled “The Digital Payments Ecosystem of India” explains that pure-play merchant acquiring models are no longer sufficient to differentiate; companies are moving toward embedded finance, data-driven analytics, and value-added services such as credit, loyalty and SaaS solutions.

The last blow, like in the case of many financial services businesses came in the form of regulatory and macroeconomic uncertainties. PwC and KPMG both flag that interest rate volatility, inflationary pressures on consumer spending, and tighter oversight by the Reserve Bank of India on fintech entities are prompting investors to reassess valuation multiples. Several online news reports also indicated that global competition from players such as Stripe and Worldline has intensified, leading to a “repricing of growth expectations” across the ecosystem. Worldline, which began exploring a sale of its India business earlier this year, has yet to find a buyer, reflecting the broader strain on valuations in the sector.

Is the bubble crumbling, or is the market recalibrating?

The term “bubble” by definition suggests valuations inflated beyond fundamentals, followed by an eventual collapse. In India’s payments-fintech market, however, the trend looks more like a correction than a crash.

According to an earlier Moneycontrol report, Pine Labs’ decision to pursue a listing at a valuation of under $3 billion, down from its earlier $6 billion private-market mark “reflects a broader de-rating across the digital payments space” rather than a signal of systemic distress.

Moneycontrol in its report, noted that weaker fintechs “face pressure to consolidate or sell stakes” as funding slows and valuations compress, while larger, better-capitalised firms are rethinking expansion plans.

Yet, it’s not all gloom and doom for the sector. For those willing to wait and adapt, opportunities do seem to exist.

KPMG’s Pulse of Fintech H1 2024 found that global investors remain open to backing Indian fintechs “with strong unit economics, value-added services and scalable profitability models.”

While companies including Pinelabs is expanding outside if India and into new products through the inorganic route (Setu acquisition being a notable example) the alternate thesis is yet to play out in it’s full form. Maybe in 2-3 years from now, investors and companies will have a better handle on whether these new models indeed helped in spread the dependence beyond payments and contribute meaningfully to the bottom line.