PayU is in the final stages of acquiring an UPI infrastructure company, several people aware of the matter told The Head and Tale.

According to two sources, the Prosus-owned digital payments company is set to acquire Mumbai-based Mindgate Solutions, in a deal close to $100 million.

“PayU is acquiring Mindgate with an aim to improve its UPI offerings – an area where it is behind its rivals,” said one of the sources.

Responding to The Head and Tale query, PayU spokesperson said, "It is the company’s policy to neither acknowledge nor deny its involvement in any merger, acquisition, or divestiture activity nor to comment on market rumors."

[Update: The Head and Tale has learned from sources that the deal is closed, with PayU initially picking up a significant stake in Mindgate, close to 40-45%—leading to a full buyout over time. Currently, PayU is acquiring ACI Worldwide's stake in Mindgate, along with some founders' stake.

"ACI may end up holding some residual with an assured buyout of the balance by PayU at some point," one source suggests.]

Founded in 2008 by George Sam and Guhan Muthuswamy, Mindgate Solutions dominates the UPI infrastructure market, processing over 8 billion digital transactions monthly. Nearly 50% of UPI transactions are routed through its partner banks, and the company claims to facilitate $1 trillion worth of transactions annually. Its clientele includes top banks like HDFC Bank and the State Bank of India, and it employs over 1,300 people.

In 2019, global payments company ACI Worldwide invested $10.1 million in Mindgate at a $70 million post-money valuation, acquiring a 30% stake. The remaining 70% is owned by the founders, according to Tracxn.

Mindgate has a strong hold in the UPI infrastructure space. The company handles authentication and transaction routing for top banks. Besides this, the company also has some international presence.

Mindgate’s expertise parallels that of Wibmo, another payments infrastructure company acquired by PayU in 2019 for $70 million to bolster its card stack. However, over the past few years the card payments landscape has dwindled in the country as UPI adoption surged. 

The acquisition signals PayU's strategic move to gain a competitive edge in the rapidly expanding UPI market.

Interestingly, The Head and Tale has learned that companies like Razorpay and M2P previously held discussions to acquire Mindgate, but those talks did not materialize. The valuation PayU is likely paying is reportedly lower than what Razorpay discussed, two sources said.

While Mindgate holds a significant share of UPI transactions, the payments infrastructure market is operations and cost-heavy business, requiring continuous investment in technology to meet regulatory standards and evolving security requirements. Some payments industry officials say that while the UPI infrastructure business is growing in transaction volumes, its profitability is shrinking -- similar to what we have seen in the SMS services space.

Having said that, Mindgate’s revenue could bolster PayU’s consolidated financials, especially since PayU has been grappling with losses. “Any profitable addition will help PayU stabilize its position,” said another source familiar with the deal. 

During FY24, Mindgate Solutions reported revenue from operations of Rs 256.6 crore, an increase from Rs 191.3 crore in the previous fiscal year, according to Tracxn. Employee benefits remained the largest expense, amounting to Rs 162.8 crore in FY24, up from Rs 133.4 crore in FY23. The company recorded a net profit of Rs 23.2 crore in FY24, compared to Rs 6.5 crore in the prior year.

On the other hand, in the first half of the fiscal year ending March 2025, PayU India recorded a revenue of $237 million (Rs 1,974 crore) from its core payments business, a 12% growth over the same period last year. And, it's credit business PayU Finance reported a 91% jump in revenue, reaching $82 million (Rs 683 crore).

The Head and Tale reached out to Mindgate co-founder Sam George on LinkedIn for comments. The story will be updated with their responses.