Setu, a money bridge that doubles up as drawing board for fintech products

Setu builds platforms that offer secure transactions and a drawing-board for new financial products at the same time

Sakhshi Singh operates a kitchen service from her home in Delhi’s Lajpat Nagar, offering Indian meals during weekends. In the last couple of months, word went around about her fare and now she has more than 100 regular customers. While she was looking to scale up her business, she encountered a problem — how does she enable customers to pay without going into the hassle of tracking multiple payment apps? That’s when she stumbled upon Setu Collect.

Setu Collect connects billers to payment apps with secure Application Program Interfaces (APIs). It enables customers to pay any bill using their favourite payment app, with just one simple integration. It raised $3.5 million in a seed round led by Lightspeed India Partners, besides participation from Bharat Inclusion Seed Fund two weeks back.

The fintech start-up was founded by Sahil Kini and Nikhil Kumar last year. The duo were earlier involved with IndiaStack, which is a set of APIs that allow governments and businesses to move towards a presence-less, paperless, and cashless service delivery of services. Kini and Kumar went different ways after that. The former founded a start-up that could not take off, and went to work in venture capital. The latter worked as a software developer. In due course, they felt like starting a company that would combine technology evangelism and financial inclusion.

Sahil Kini (left) and Nikhil Kumar, founders of Setu Collect

Concept

Simply put, an API is a conduit between two different applications — such a payment app and a restaurant app. Imagine being embroiled in a legal suit. Would you rather attend law school and get into the bar to fight your case or contact a good lawyer? Of course the first option is not feasible. An advocate is your solution — an interface between you and the legal system to communicate. An API is roughly the same — a readymade building block for an app to communicate with other apps.

Opportunity

India's fintech sector will hit $8 billion in value by 2020, according to a Nasscom report. Setu’s mission is to make every company a fintech company in India. Setu co-founder Sahil Kini says the company's potential market is as big as India's economy. Despite India's high GDP growth in the past two decades, the penetration of financial services remains low. In 2018, only 3.69 per cent of Indians are insured, according to a report of the Insurance Regulatory and Development Authority of India and 39.37 million credit cards were in operation — meaning only a third of Indians were using them — according to an RBI report.

Business model

 

When Kini and Kumar met their mentor Nandan Nilekani to discuss ideas for their start-up, the Infosys co-founder asked them how they would create long-term value. So they decided to tackle one of the biggest problems that companies face — how to bundle multiple financial operations seamlessly? For instance, a company is enjoying a positive cash flow, which it wants to park in an investment instrument but also seeks to be able to pull it out whenever required. Setu offers a pipeline so that what a company is paid can be parked in a liquid mutual fund for the time being — and charge a small fraction of the transaction. This helps companies substantially pare down the costs of managing their money.

Challenges

Harsha Kumar, partner, Lightspeed, says for Setu to scale up, one piece of the puzzle is to work closely with distribution platforms to tailor financial products and take them to market. The biggest challenge would be to figure out how to do this in a repeatable manner, she says. Another challenge the company will have to deal with is making sure there’s no friction with regulatory norms when stacking together two or more financial operations.

Road ahead

Setu is building a tool that will help companies ease their GST processes. It has teamed up with PhonePe and Capital Flow and is seeking out more banking and fintech partners. Kini says the next one year will be about making the liquid mutual fund and GST services gain traction in the market so that Setu can become a robust pipeline for making money flow.

Expert take: Setu needs to make impact swiftly

Ashneer Grover, Co-founder and CEO of BharatPe, India’s first and largest UPI QR code provider

Setu is an amazing attempt to democratise access to India stack and banks for tech companies. It will ensure better experience and products for customers with tech companies like us innovating on top of Setu's APIs.

Its offering creates software infrastructure for companies that help make financial inclusion possible. The offering largely suits small and medium size companies that may not have the infrastructure or resources to enable a holistic digital payments ecosystem. Thereby, the opportunity for growth is immense. 

The only challenge that is ahead of them is need for penetrating the market at light speed. 

Setu needs to make a huge impact in a short timeframe as small and medium companies are also been increasingly recognised by larger institutions as a growth segment.