Embedded financing isn’t an entirely new concept. However, its rise to the forefront in India is only happening within the last couple of years. There is a desire for everyone to become an fintech’.
This led to the emergence of middlemen in the market that joined the ropes between platforms and banks to enable the latter to embed financial services on their websites and applications along with their core product.
The biggest market player in terms of valuation M2P Fintech actually got its first advantage as a mover when it was first introduced as a provider of payment stacks in 2014. This was a time where the term “embedded Finance was not as common within the Indian fintech dictionary.
It began by forming partnerships with NBFCs and banks to assist them in launching their own payment systems for businesses that want to offer digital payment solutions for their platform. An example of this is Zomato providing various payment options at the checkout.
In 2017 the API infrastructure company had managed to increase the value of its payment system, including credit, debt travelcard, prepaid QR codes UPI AadhaarPay along with NETC toll payments. It also introduced the credit stack (BNPL) as well as a core bank infrastructure suites to traditional bank.
The client list of the company includes some of the largest companies in Fintech. both private as well as public banking, as well as technology companies.
Of the many startups that came into the market M2P is currently an estimated value of 600 million dollars with more than 300 banks and 600 fintech customers around the world. Its Rs 40.58 crore in revenue (FY21) that was distributed across
It is now an enormous share of the ever-growing pie of embedded finance.
After the pandemic, however the race to be an API infrastructure provider has become fast, and so does the company’s strategy to increase and protect its market share.
In all the decades, M2P was always situated in the middle of businesses and banks/fintech. But, it stopped its growth and reviewed its growth strategy, and placed the spotlight on traditional banks , and “fulfilling their aspirations” first.
While the relationship of traditional bank and fintech are clear but the latter is stepping up its game by launching Neobanks (in alliance with banks themselves) offering almost everything banks do in traditional banking and perhaps more.
Traditional banks have been sucked into their own FOLO (fear of being excluded).
The Chief Executive Officer (CEO) and Co-Founder Madhusudanan R puts things in an overall perspective.
15 countries and a more than $100 million in funding from investors such as Tiger Global, Beenext, DMI Group, Better Capital, Insight Partners and MUFG Innovation partners.
It is now quite a large share of the growing pie of embedded finance.
After the pandemic, however the race to be an API infrastructure provider has grown fast, and so is the company’s plan to increase and protect its market share.
In all the decades, M2P is situated in the middle of businesses and banks/fintech. But, it stopped its growth and re-evaluate its growth strategy, and placed the focus on traditional banks, and the ‘fulfilling their ambitions first.
While the relationship with traditional financial institutions and fintech companies is clear however, fintech is now upping its game by launching Neobanks (in collaboration with banks themselves) which offer nearly everything banks do in traditional banking and perhaps more.
Traditional banks have been sucked into this FOLO (fear of being not being).
The Chief Executive Officer (CEO) and Co-Founder Madhusudanan R put things in the right perspective.
“The boardroom discussion of a bank now entails questions like, ‘If a fintech is doing something or disrupting a new space, is there value for us doing this by ourselves?’ Banks have an aspiration whether it is new banking or BNPL, or any of the products that fintechs are offering,” the banker says.
This has led to the concept of “digital banks’.
The digital banks extend traditional bank services (for example, Kotak Mahindra Bank’s “Kotak811 Digital Bank’) whereas neobanks are only online and have no physical branches.
The new “aspiration” of becoming an online bank has led to an enormous boost to M2P. It is putting a more intense concentration on improving its banks’ core banking infrastructure infrastructure for banks, which will allow banks to establish their digital banksat the same level as fintechs in addition to its leading position in the lending and paymentstack for all other stakeholder.
“We have discovered that we’re quite positioned to use all the lessons we’ve learned from a product that other fintechs are offering , and provide banks with a viable option to develop their own products. That’s the direction we’ve taken in the past couple of months,” the CEO says.
This is the acquisition strategy of M2P over the last 10 months. Five strategic deals are geared towards this goal along with new capabilities in the product, such as collection tools and tools for engagement for banks that will not only add value to M2P, but also expand its revenue streams.
A lot of attention is paid to the central banking stack
We must first understand why banks are investing in technology. This is split into three distinct parts: System of Execution, which includes the bank’s primary financial technology (CBS) or an Loan Management System (LMS); System of Exploration (the payment stack used by companies) and the System of Engagement (products on top of core banking , like rewards).
Since its beginning the main service offered by M2P to banks has been exploration, i.e providing the payment stack. Most of its revenues come from this as its core lending and banking infrastructure. The company did not comment on its revenue share.
It’s not a hidden fact that the old or CBS was long past due for an upgrade, and that includes the move to cloud computing.
In order to better understand this service, M2P acquired BSG ITSoft and Finflux. While BSG helps M2P’s banking infrastructure play, Finflux, which offers the LMF platform, is the next step towards creating an even more robust and secure bank-specific digital lending platform (including BNPL), along and tapping into other areas, such as mortgage finance for housing.
Of the 10 banks that are private, 8 have already creating their own version of an BNPL product using M2P’s platform.
Furthermore, BSG primarily focused on cooperative banks, an expanded market for M2P to tap since a new set of clients are added to the list of customers. In addition to having an integrated CBS payment stack it will also assist M2P develop capabilities in new applications of trade finance and blockchain and speed up their integration into mainstream banking.
In addition, the company has been keeping an eye on RBI’s digital lending rules as well as an Account Aggregator (AA) potential.
Finflux is already equipped with an AA license, enhances the features of M2P that will be “working closely with the startup to figure out how it can leverage the AA licence from an embedded finance standpoint, especially lending”.
“In our current business, we have never had to work directly with Housing Finance Corporations (HFC) since we did not have a greater understanding. This is a totally diverse asset category, however it is the LMS platform (part of the banking stack) which we provide is also catering to HFC currently due to Finflux. If my LMS is being utilized by HFC could I use the account aggregator to make underwriting more effectively?” Madhu explains.
He goes on to say, “And we can actually use that learning to go back to banks and say, can we build better products around home loan?”
The third acquisition by Wizi, a credit card focused startup, falls within the category of exploration banks. The deal will enhance the M2P BNPL platform for banks which will be able source new customers.
In actuality, Wizi was actually a consumer-facing B2C platform that M2P could convert to an B2B banking-facing business.
“Most all of us have BNPL stacks are digital from a viewpoint of sourcing. The Wizi platform is one being used in this regard. The strategy seems to be working,” he says.
Acquisition by Origa Origa, a SaaS platform for loan recovery, as well as Syntizen that provides electronic customer onboarding services could be described by some as “add-ons” offered by M2P to banks. The former gives more underwriting options, and the latter eliminates the burden of onboarding customers for banks.
In a sense, M2P wants to be the bank’s one-stop-shop.
“There are parts that go together and make the system effective. These deals were completed in conjunction with other elements and they were in sync with each the other,” Madhu says.
Each of the five deals was made up of stock and cash.
M2P has raised two additional capital rounds in 2021 (the most well-known was C1 and Series C of the total of $91 million) with the help of Tiger Global and Insight Partners to finance the transactions.
“A significant portion of our deals were funded through the fundraising we conducted over the last 12-18 months. When Tiger arrived, that was when we started our process of going out and buying businesses. We’ve been chasing aggressively opportunities and are currently exploring possibilities outside India to accelerate our market entry” He states.
Fintech is a SaaS play
The primary goal of M2P is to create an “plug-and-play” SaaS productfor banks that will enable them to become digital within 90 days as opposed to the typical 12-month cycle.
“Instead of having to go through the same tech companies for the development of multiple products, could we combine everything into one platform, like a bank-in-a box? There’s plenty to be done on this front and we’re identifying areas in which we can create or explore buying acquisitions” CEO says.
Tapping other segments embedded in the same
Other possibilities in the area of embedded finance such as integrated insurance and investment are being explored and are being closely monitored by the M2P team.
The company has chosen to use an “first partner, then acquisition”approach to see whether the segments add benefit to the existing business.
The value of deals in dollars and future acquisitions
At present, M2P fintech claims to be one of the biggest API infrastructure service providers in India. It has close to $100 million in revenue out of the which 20% of it will come from the acquisition of companies.
Around 15 percentof the revenues come directly from the international market,inlcuding United Arab Emirates, Bahrain, Egypt, Qatar, Oman, Australia, New Zealand, Nepal, Sri Lanka, Singapore, Vietnam, Indonesia and Philippines and the shares will rise in the next two or 3 years Madhu says.
The founders, who have approximately 45 percent equity and claim to have an income-generating India company and have no plans to launch an IPO currently. The company’s revenue increased from 22.48 million in FY20 and the figure of 40.48 millions in FY21. The costs,particularly around employee benefits and co-branding, soared in a similar manner.
Although it made profits over the past two years of financial reporting however, it suffered massive losses up to approximately Rs 5.99 million during FY21. “It was our first year of losses and was due to hyper growth. While our revenues have been growing steadily, we have been actively investing in our growth in India and abroad,” the company stated.
The company also put up around 3.67 crore in its UAE subsidiary. 3.67 crore into its UAE subsidiary too.
The financial statement for FY22 has yet to be prepared.
In the future, M2P is betting high confidence in its plug-and-play system that allows digital banking. The most recent agreement involves IndusInd Bank that will use M2P’s tech to offer services in the areas of lending, payments, and wealth management for the bank’s customers.
“The programme (digital bank) will compete with the best of what fintechs have to offer,” Madhu declares.
M2P might have pressed the pause button when it comes to acquisitions in order to integrate its newly acquired business and teams, but it’s still maintaining it’s “antennas up” for valuable deals.
With the huge market for M2P fintech and its massive size, will it be harder for smaller or emerging firms to take on the competition? It competes with the such companies as Rupifi, Niro, Decentro, Setu in the business of API infrastructure. Following M2P, Tiger globally-backed Rupifi and Setu (acquired by Pine Labs) are among the top-funded startups.
“My responsibility is to ensure that we are moving the goalposts. Even if someone new who steps into the team, it will be extremely difficult to make them catch the level of execution we’ve achieved. This is a tough industry due to regulation and banks. This means that if someone is just starting out today even with a large amount of capital, it’ll be at the very least two years before they are in any way to the level we’re doing now.”