PE firms build insurance empires while UPI's free ride (potentially) ends | Fintech Inside #98

Hi Insiders, I’m Osborne, an investor in early stage startups.

Welcome to the 98th edition of Fintech Inside. Fintech Inside is the front page of Fintech in emerging markets. Just two editions away from the big 100!

The unwritten rules of Indian finance are being rewritten in real-time. Across insurance, lending, and payments, we're seeing established models challenged and new precedents being set that will define the market for years to come.

In our Top Three this week, we dissect these pivotal moments:

1. The Insurance Gambit: Private equity firm WestBridge is creating a fascinating regulatory puzzle, owning major stakes in two potentially competing insurers. I explore the conflict, the "Berkshire model" for PE in India, and why the insurance sector is suddenly so hot.
2. The "Vanilla" Gold Rush: Tech VCs are falling in love with "boring" but profitable NBFCs. The $300M acquisition of Infinity Fincorp is the latest example of a massive trend where stable returns are beating high-tech hype.
3. The End of Free UPI? ICICI Bank made a bold move, introducing a transaction fee for UPI aggregators. This small fee could signal a tectonic shift towards a sustainable UPI model, finally answering the question of who pays for the world's best payments infrastructure.

These aren't just headlines; they are signs of a maturing market grappling with its own success.

If you want to know where the market is headed, follow the smart money. Here's the inside track.

Thank you for supporting me and sticking around. Enjoy another great week in fintech!

Considering angel investing? I get a bunch of fintech founders reaching out to me for investors. I’d be happy to put you in touch. I’m at os@osborne.vc

3️⃣ Fintech Top Three

1️⃣ PE Firms Are Building Insurance Portfolios: How PE Money Is Reshaping India's Coverage Game

WestBridge, the PE firm, partnered with Neelesh Garg, ex-CEO of TATA AIG General Insurance, to form Kiwi General Insurance - a digital first insurance company. In July, 2025, Kiwi received R1 approval from IRDAI to set up a general insurance company in India.

1. WestBridge joins other PE firms: WestBridge joined the league of Fairfax, Warburg Pincus, Premji Invest, TPG Capital, TrueNorth, Carlyle and other PE firms in owning stakes in Indian insurance companies. WestBridge will own 60% stake in Kiwi General Insurance, along with its existing 40% stake in Star Health Insurance.
2. Doesn't the ownership create a conflict? Banks have always owned large stakes in general, life and health insurance companies, so there's no issue per se. But this is the first time the regulator is faced with a private holder owning such stakes. With WestBridge owning a meaningful stake in both Kiwi and Star Health, the regulator is in a fix of its own making. Kiwi could launch health insurance products, but will directly compete with Star Health. There already seems to be talk of IRDAI potentially curbing Kiwi from launching retail health products. But there's almost a year long journey to go from the R1 phase of approval to R3 and final "go live". Will be interesting to see how IRDAI tackles this, because this will set precedent.
3. Health insurance is key for new insurers: The motor insurance market seems to have plateaued though and any growth seems to be a factor of price increase. Growth in the market is coming from health insurance segment with some factor of price increase. So health is clearly important for any insurer. However, claims ratios are increasing for the insurers and could impact profitability.
4. Why would PE invest in insurance? We all know the now famous Berkshire model of investing in insurance businesses and using the "premium float" to invest in other businesses. Today, global PE firms like Apollo Global and KKR have tweaked that model in buying out insurance companies - Athene and Global Atlantic, and using that insurance premium float, to lever up and launch private credit products, creating a "financial perpetual machine". I'm not going to get into the pros and cons of that model, but it's SUPER interesting to read up on, if you're interested in it. In India though, all insurance companies have to follow the IRDAI (Investment) Regulations, 2016 (page 57 onward in English). This regulation basically outlays what an insurer can do and cannot do with the customer funds and shareholder funds. There cannot be any deviation in adhering to this regulation. General insurers in India can invest in approved securities like government bonds, AAA-rated corporate debt, infrastructure instruments, and select equities and mutual funds, with IRDAI-defined exposure limits and diversification norms. Insurers can invest in public markets, but only in certain, stable stocks. So the universe of investable assets is very limited. But the Indian insurance sector is hot and owning an insurance asset is high growth at best and stable growth at minimum. This means, the return profiles are relatively low risk to hedge a portfolio for decent returns.
5. Insurance sector is heating up: The IRDAI is not too quick in doling out insurance license approvals though. GoDigit and Acko received general insurance license approvals in 2016/2017. Then Kshema General Insurance and Narayana Health Insurance received approvals in 2022 and 2024 respectively. That's it. Only in 2025 did it approve Vauleattics, Digit's reinsurance business, and potentially Reliance Jio and Allianz' reinsurance JV. There have been several approvals for insurance brokers in the recent past. Even on the regulatory front, the IRDAI and Ministry of Finance have introduced reforms to entice more participants in the insurance industry including removing the FDI ownership cap of 75%, composite broker license, flexible pricing for motor insurance, PE participation in insurance including as a promoter and much more.
6. Can IRDAI do more?: Over the past decade, it surely seemed like IRDAI, India's insurance regulator, has been slow to implement reforms in India's severely under-penetrated insurance market. And while that's in some ways true, IRDAI, has taken a risk-off approach to letting participants operate in this market. Startup founders are not allowed, VC firms are not allowed and many other restrictions. There are pros and cons to allowing it, but at India's population scale, we need to be more risk-on and get more people to participate and increase India's insurance participation.

2️⃣ Hottest new fintech in town

Infinity Fincorp, a small business finance company, raised $70M+ in 2025. Partners Group acquired a 75% stake in Infinity Fincorp for $230M.

Takeaways:

1. The master of one: Infinity Fincorp isn't really a fintech, but a vanilla financial services company. Founded in 2016, it received its NBFC license in 2017 and has just one product - loans against property. It's grown with that one product to 120 branches across eight states (3 states in south contribute 75% of AUM) and 50,000+ small and micro business customers across agriculture, trading and manufacturing. Since 2016, Infinity disbursed more than 2000cr ($230M) in loans, 42% of disbursals was just in the last two years.
2. Why is Infinity hot these days? Going by its recent fund raise activity, Infinity announced raising $35M in Jan, 2025 and then soon after, announced raising another $40M in April, 2025. And now, as of June, 2025, it announced the majority stake sale to Partners Group. I'm not able to verify, but I think, Infinity Fincorp was founded by and majority owned by TrueNorth, the PE Fund, or a fund advised by TrueNorth. Seems like this would have been a good return profile for them over the nine years since founding. This is PE working well.
3. Strong financial growth: Infinity seems to be growing at breakneck pace, for a single product NBFC. In FY25 (ended Mar, 2025), it did INR 240cr ($28M) in revenue, that's 67% more than the INR 144cr ($16M) it did in FY24 (ended Mar, 2024). It's net profit (PAT) for FY25 was INR 44cr ($5M), compared to INR 26cr ($3M) it did in FY24. It's gross NPA (DPD90+) stood at 1.94% at at Dec, 2024 and net NPA was 1.42%. This may seem really strong loss performance given the small business customer base, but for a secured product, it's higher than expected while nothing that cannot be absorbed by its net interest margins. All that being said, Infinity grew its AuM to a strong 1,083cr ($124M) as of Dec, 2024. I don't have much to go on (don't know book value, don't know enterprise value etc.), and while price/revenue multiple is not the right metric, its 10-11x revenue multiple seems high. Infinity is as vanilla as it gets in terms of business model, and yes, growth is better than most at 67% YoY, but even then, valuation seems rich for such a straightforward lending business. Great outcome for the business and the early investors.
4. Vanilla NBFCs are hot among VCs in 2025: Jungle Ventures and Beams Fintech are not the only VCs playing this game though. Every other large VC in India is buying stakes in traditional NBFCs. Elevation, PeakXV, Stellaris Ventures, Saison Capital and others seem to be hedging their portfolio with these investments. Elevation invested in Mahaveer Finance's $24M round, Stellaris and Saison Capital invested in Techfino's $8M round, PeakXV invested in SarvaGram's $67M round. All being secured/small business finance in some way. Haven't done the math on these businesses, but I'm assuming a similar higher revenue multiple across transactions and reflects the premium investors are willing to pay for predictable, secured lending businesses in an uncertain market.

3️⃣ To be free or not to be, that is the UPI question

ICICI Bank introduced a 2-4 basis points transaction fee for payment aggregators using its Unified Payments Interface (UPI) services.

1. Long time reader? If you've been a long-time reader of Fintech Inside, you'd have read my in-depth analysis of UPI in Edition #66 in 2022, its infrastructure, costs and my take. Back then, I said that 1) UPI should not be free, 2) it should be charged at a flat 10 basis points per transaction, and 3) that most likely the government will not let a fee be introduced. The jury is still out, but i'm claiming I was right about 2 out of 3 counts. Surprised, that it took only 3 years and even the government is discussing introducing a "sustainable model" for UPI.
2. Tables are turning: ICICI Bank made a bold move. It introduced a 2-4 basis points transaction fee for payment aggregators (PA) using its UPI rails. This is the first time a large private bank has openly charged aggregators for UPI access. Surprisingly the fee structure is what I would have imagined HDFC would have designed. If the PA uses an ICICI escrow account, then the fee is 2 basis points, else, it's 4 basis points. And if the PA directly settles between the user and the merchant, to the merchants ICICI account, then its free. Fascinating fee structure, favouring using ICICI's banking services.
3. Why does this matter? Since inception, UPI was “free” for merchants and aggregators. Banks absorbed the infrastructure cost. Axis and YES Bank charged PA's some portion of the cost. Then, UPI volumes exploded, especially on the peer to peer side, causing serious strain on the infrastructure. ICICI’s fee is small, just 2-4 bps, but it sets a precedent.
4. What happens next? Payment aggregators will face a tough choice. Absorb the fee, or pass it on to merchants. Some may try to negotiate. Others may look for workarounds. But the era of “free” UPI for business is likely over. The bigger question: if UPI economics change, what happens to the fintech business models built on free infrastructure?
5. RBI Governor chimes in: At an event, the RBI Governor said "This (UPI) is an important infrastructure. The government has taken a view it should be available free and the government is subsidising it. And I would say it has borne good fruits,” Malhotra said. “The important thing is that the UPI, or any other payment system for that matter, is accessible, cheap, secure, and sustainable…and it will be sustainable only if someone bears the costs. So as long as it’s the government or someone else — that’s not so important — the important thing is that costs of any service should be paid, whether collectively or by the user." Quote from Indian Express. His comment and the ICICI UPI fee introduction were completely independent of each other, I think.
6. Caveat: This is early days. The regulator and government may step in. NPCI might issue new guidelines. But one thing is clear—UPI’s economics are changing.

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🎵 Song on loop

Fintech updates can get boring, so here's an earworm: Portugal, the Man, the band famous for the song Feel it Still, has this lighthearted song about refusing to be bogged down by anxiety or the pressures of adulthood. Enjoy What, Me Worry? (Youtube/Spotify). Ideal for the times, I guess.

✨ Call outs

1. [Report] HDFC Ergo’s Annual Report FY25 was a good read about the general insurance industry in general. Health insurance outpacing motor, 32% customers coming direct surpassing brokers, and more such insights packed in the report. However, I must point out that HDFC Ergo is terrible at chart making.
2. [Report] NSE’s Market Pulse report. NSE publishes a solid 300-page monthly report with key stats on India’s public markets and market participation. Good read with data.
3. [Video] How every car brand got their name. Hilarious video on all the major car companies of the world. Most are just the last name of the founders e.g. Ferrari, Lamborghini but some others are quite fascinating.

👋🏾 That's all Folks

If you’ve made it this far - thanks! As always, you can always reach me at os@osborne.vc. I’d genuinely appreciate any and all feedback. If you liked what you read, please consider sharing or subscribing.

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See you in the next edition.