My chat with Priyanka Kanwar, Cofounder of Falcon

Longtime readers would know I’m a believer in the idea that software companies would increasingly have financial offerings. I have worked in this world and deeply appreciate the potential and complexity. Today, I talked to Priyanka, the cofounder of Falcon, a BaaS startup based in Delhi and Bangalore in India. She’s been immersed in fintech for almost a decade and has closely observed and participated in the ups and downs the industry has gone through in India. We talked about the evolution of India, her time in the States, her creative pursuits, her early interest in micro-finance, the first bootstrapped innings of her company, the journey of pivoting and raising venture capital, her plans for Falcon, and her perspective on UPI, BaaS, business models, evolving RBI guidelines, and more. In trying to push her on a few topics, I realized she makes for a great spokesperson for fintech. She is intimately aware of the challenges, can effectively articulate the potential, and has the historical perspective that equips her with the optimism needed to navigate the complexity. 

Sar: Every time I visit India, I’m amazed by how different our lives were less than a decade ago! I left India in 2014.

Priyanka: Oh yeah. I think about it often. I feel like a different generation sometimes. I'm young, but I still feel like, oh my god, what were we doing?

Sar: Bangalore tech vibes feel similar to San Francisco’s. It is very much a bubble within a bubble. I don’t mean it as a bad thing. It is what it is.

Priyanka: I feel that. I have seen both SF and Bangalore. I can see similarities. I'm happy to be in Delhi, but I have an office in Bangalore. I don't feel FOMO, but I'm in reality. So it's a nice mix.

Sar: Yeah. New York felt like that to me after spending some time in California. What was your time in the US like?

Priyanka: I loved the US and feel like I am now an entrepreneur because of my time there. I was never supposed to end up in the USA. I always wanted to go to England and go to Oxford or Cambridge for school. That has always been my dream growing up.

I wanted to study economics, but something strange happened to me. I took a gap year after High School because my grandfather passed away. I wanted to do something outside the textbooks. I got intrigued by the idea of microfinance. So I started interning and going all around India, shooting a documentary on microfinance. I learned that I loved filmmaking, photography, and creative work, not just economics. And that's when I was like, I'm going to get bored in the UK because their education system is so rigid.

Sar: Yeah, it’s similar to India

Priyanka: Yeah. I realized that was not for me. I started exploring the American liberal arts education system. I eventually went to Yale and took all sorts of courses. I did music, physics, and environmental engineering. I always knew I wanted to return to India.

Sar: You knew in college that you wanted to start something in India?

Priyanka: Even though I love the US, I just wanted to come back and start up here. I think I was always very clear about that. When I was in school, I always had the entrepreneurial bug. My dad and grandad started their businesses at a young age. Growing up, I saw him constantly firefighting every day. Your family heavily influences you, right? Honestly, I wasn't even happy at Yale doing the same thing as everyone else. I took MBA classes during my undergrad. And I started working on a startup with some of my MBA classmates. I was obsessed. And I don't think anybody could reason with me at that point. I had people who advised me to get a job. And I was just hell-bent on doing my thing.

Sar: Did you spend time in the American startup world?

Priyanka: No, not really. I started with my idea of creating a mobile payments startup in India while I was still in my senior year. So I made my first recruit there. And then, I did my thesis on India’s direct benefits transfer system. I started something similar to Venmo meets MPesa. I came back to India right after I graduated to work on it. It was called Kite Cash at that time. That was my very first B2C payments product. I started working with a bank called RBL bank, which was, at that time, the darling of Indian payments. And this was before payment banks, and UPI came in. We started with students and folks in tier-two cities who were uncomfortable having a bank account or didn't have their debit card.

We started this concept of creating one-time virtual MasterCards. We had an agent network where our users could go and exchange their cash for digital money because cash was still huge then. I was supposed to launch only at one college campus in Delhi. I remember on the first day, we had like 10,000 sign-ups not only from that one college but from everywhere. I remember we were in the office talking to my tech folks, and I was like, oh my god, what do we do? We had about 150,000 users in about six to eight months. We had people from 2000 cities using it because we had just opened it up broadly.

Sar: How were people learning about it?

Priyanka: It was, honestly, just the App Store. There were not as many apps as you see today. It wasn't as noisy. Instagram and Twitter were just rising in popularity. People loved the simplicity of just being able to send money seamlessly. We had this feature where you could send money to any mobile number without knowing their bank account details. In the pre-UPI days, it was very clunky sending money to people. I had no idea how any of this would work. I didn't know how regulation would work. The pickup happened quickly. But it took me a good 18 months to just launch it. Looking back in hindsight, I don't know how I did it, honestly, because, at that time, there weren't any banking-as-a-service (Baas) companies.

Sar: Right, everything had to be built from scratch. How did the banks look at you?

Priyanka: It was just insane. Banks looked at us as college kids and said, “Go away. Don't waste our time.” It was hard. The fintech ecosystem was just getting started.

Sar: How did you manage to get it up and running then? You spent four years outside India and were doing this for the first time in a highly regulated space.

Priyanka: It's crazy. If I had to pin it down to just one thing in the fintech industry, especially in India, it's just perseverance. You just have to keep going. There's nothing else, right? But it was hard. It was insanely tricky because we didn't know anything. The bankers didn't know anything. They were new to this. What's exciting and funny is that after all these years, the first person who championed our cause at the RBL bank has become our CBO at Falcon. It's hilarious because he's unabashedly now telling us what they thought of us at that time. The bank was like, “We need to focus on our core businesses. What are these kids doing?.” =

Sar: You moved over to B2B eventually, right?

Priyanka: Yeah. We had crossed more than a hundred million dollars in transactions. My co-founder Prabhtej and I've always thought about strong economics and profitability in our DNA. Because of the lack of UPI and easy options for loading money into the card, we had to be the merchant for the payment gateway, and we had to fund the loading on the wallet. We had a ton of transactions, and the app was getting very popular, but we lost a ton of money every month. We were not very happy with that. We decided to transition to B2B payments to be more sustainable.

Sar: Where was the money coming from in the early days? Did you raise? What were your major costs at the time?

Priyanka: No, we had friends and family money at that time. We had never raised any money; we became operationally profitable. We only raised for Falcon last year.

Sar: Why did you move to B2B?

Priyanka: We had built up a tech team and started understanding the industry. We built up some banking relationships. So we decided to focus on B2B because the B2B payments in India were less noisy. We didn’t have Amazon, Paytm, or Google getting into the game. We got started with our B2B2C model. But we never called it BaaS or embedded finance at the time, even though that was what it was.

Sar: That phrase didn’t even exist. I'm surprised by how these phrases come into being. What were you guys thinking at the time? What was the context of the transition?

Priyanka: There are a lot of banks in India that are very large and have a captive base of corporate customers. But because of a lack of tech resources, they could never give them the products they needed for day-to-day payments at the last mile. We started working with one of the largest public sector banks, PNB. They had 15 million corporate customers, including SMEs, and out of those corporate customers, about 10% of those had existing bank credit lines. They had huge exposure, especially to 100K-200K customers. And none of these customers could get something as simple as a corporate card or accounts payable solution from the bank. Everything was so clunky. So we started working with them to build accounts payable automation and issuance layers for these corporate customers. And we did a bunch of integrations to enable that. And within a year, their card portfolio went up to over a thousand crores, which is more than $150-200 million. We built all this infrastructure for commercial payments.

Around the same time, companies like Dunzo had come to us and said, “you guys have been working with banks, you understand the system, and we are struggling with rider payouts.” I started to build APIs to solve that problem for them. And we were doing this sort of under the radar. I didn't even know what embedded finance was. I was just trying to help a fellow founder friend solve a problem.

So that's how we started to help banks with commercial payment use cases but also help some tech companies like Dunzo. During COVID, all of this started to come together. The dots started connecting, and I saw an absolute explosion I’d never seen in Indian fintech. Every type of company was coming, and they were like, “we heard that you’d given your APIs to that company; can you also give them to us?”.

It came to the point where I was overwhelmed because we were bootstrapped, and I had very few people on my team. We barely had a sales team. And we just couldn't handle it. We had to choose between either saying no to these people or embracing external funding to meet the demand we were seeing. We've never felt that kind of pace before. That was the same inflection point we saw on the merchant acquiring side seven years ago. It was the same coming of age that was happening for BaaS.

And we realized we’d been around long enough to have a significant impact. We have the technology in place. We have worked towards this over so many years. This is something that we're passionate about because we suffered through it. I keep joking about how I spent most of my twenties just sitting with bankers and trying to convince them to do things for me. We started talking to investors. We started at 500K but raised 3 million in a convertible round from a ton of really cool people, including folks from the US. That’s how Falcon was born. I rebranded because we started to do so many more use cases.

Sar: What's the back story behind the name? The name's very cool. Why Falcon? It’s not Indian sounding at all!

Priyanka: I think many people will joke that I'm not very Indian either. These names came very intuitively to me. Kite was about freedom. I feel like these names reflect my journey also because Kite was about breaking free from what everybody else was doing in college. And I think Falcon was like coming of age for me as a fintech founder. It is about moving faster than ever before, moving with aggression.

Sar: Ah, that’s wonderful. Your creative side comes through here! You began your journey helping people send money to other regular people using this agent network, which is not a common concept. It’s not an intuitive idea for many to walk into a store and trade cash for a digital balance in an app.

Priyanka: Yeah, It doesn't happen in India anymore.

Sar: Right, which shows how fast things can change. If you had moved back to India a couple of years later, you wouldn't have had to build Kite Cash in the first place! We would have had UPI already.

Priyanka: I know! It's been such a journey! Those five years changed everything for Indian payments. We've constantly had to deal with these changes, which are coming every month. Fintech founders probably have thicker skin than all the founders in India.

Sar: It feels like a whiplash of regulations these days, right? The entire digital lending market is in turmoil because of evolving regulations. For the longest time, the prevailing theory was UPI had destroyed the transactions-based business model, so the fintech players have to lean heavily on lending. But lending is now getting complicated. I don't know what comes next. What do you think about that?

Priyanka: The next couple of months will be tricky. We're all learning to deal with new regulations. But ultimately, I think it will lead to a more stable environment for people to innovate. I'm perpetually bullish on the space and could give the rest of my life to fintech. I've decided that and I can't do anything else. I love this space so much.

When I was working on microfinance before going to the US, I wrote an article for the Economic Times about the problems in lending right before the microfinance industry faced a similar whiplash in 2011. And at that time, RBI (India’s central bank and the banking regulator) formed a committee and said, we can't allow this. And many regulations came out and led to a new license, the NBFC-MFI license. Many microfinance institutions had to reinvent themselves. And in the last five years, the largest share of new licenses has gone to MFIs. The microfinance industry is doing exceptionally well today. That’s my macro-level view. Everybody, including the RBI, realizes that fintech is inevitable. So the banks either have to work with them or compete with them. Some flows will have to change, and compliance costs will increase, which is why BaaS has become even more important. But, there's no world without fintech anymore. So this is similar to coming of age in the fintech industry in India.

Sar: Yeah, your perspective is the RBI is trying to clean up the wild west, right? And it's their job to do that.

Priyanka: Yes, exactly.

Sar: In the simplest terms, for an outsider, what are the dominant ways of making money in India for fintech companies? Moving money can still make a ton of money in the US. In a post-UPI world where you can’t make money on bank-to-bank transfers, the companies have a problem, but it’s great for consumers.

Priyanka: Honestly, the monetization opportunities are aplenty and will only increase from here. We’re looking at a revenue pool of $30B across major product lines like cards, real-time payments, accounts, and BNPL/lending. NPCI clarified that the interchange would stay on UPI credit, unlike UPI bank-to-bank transfers. If the interchange is not there, nobody will have the incentive to offer 30-45 day interest-free credit on cards. There’s money in building tech stacks for many of those use cases. UPI is still a young instrument, and they’re talking about compensating tech providers somehow to keep the infrastructure going. How many popular apps do you see in the country right now for UPI?

Sar: Only 3-4, and the volume breakdown is top-heavy.

Priyanka: Yeah! Similar concentration was the story when debit cards came out and when credit cards came out. Anytime a new instrument comes out, pioneers push out new technology. Today, every single bank has a debit card. It's a no-brainer. I think UPI has been restricted to one type of use case and one type of experience so far. There’s uniformity of experience, right? There's no difference across the apps; you can only do one or two things with UPI.

Sar: I appreciate that historical context and the optimistic take, but isn’t that the intended purpose?

Priyanka: Yes, it's designed for a money transfer, but there's only one use case right now, right? Everything is so early. Today, I can't use UPI for business payments at all. There's so much that has to be built as an experience layer. Lending as a use case doesn’t exist right now. I can't use the UPI rails the same way I can use the card rails. That’s why there's still money to be made in prepaid and credit.

There is a cost of loading funds, and there is a cost of capital, which is why you can charge the interchange on debit and credit cards. You can program those cards to enable many different use cases, both commercial and retail, right? Right now, the basic use case for UPI is free because the government has certain adoption goals. The Indian government is pushing UPI aggressively.

Sar: Right, the intent is to reduce reliance on cash, drive mobile payments, and not make money. They want people to use the money they already have versus push credit. They are just getting started with UPI credit. And now, there is a big debate around how to generate revenue in the UPI system and who should bear the costs.

Priyanka: Exactly. So far, we’ve seen only the foundation, the first leg of UPI. What is exciting is that UPI has broadened the base of digital payment users exponentially. The next leg will be about layering more products and building new embedded finance use cases and experiences for vertical industries on top of this new data mine being created. When coupled with new infra like Account Aggregator and UPI credit, this will be a total game-changer that will deepen the market significantly. In a country of more than 1.4 billion, there are less than 50 million unique credit cardholders. Imagine how UPI credit could rapidly bring in the next 100 million.

Sar: Can you give a quick overview of the Account Aggregator initiative? It hasn’t seen the early success that UPI has seen so far.

Priyanka: Imagine Plaid but at a national scale, not owned by a single company, but as public infra– that’s what Account Aggregator is. It gives the power of data back to the end user – be it SMBs or consumers like you and me. That’s really powerful, and we’re just beginning to see very interesting use cases emerge. Before this, it was very clunky and difficult for these users to extract their data to share with third parties, say for a home loan or term insurance. You’d have to collect tons of paperwork and depend on the custodians of the data, i.e., mostly banks. Now, with a few taps, users can consent to any third party to view financial data, such as a lender or insurer, or even to improve their experience on travel or ecommerce apps. This is akin to leapfrogging traditional credit bureaus that barely covered any of India’s population with their credit scores. The digital footprint created thanks to UPI and other innovations in the last five years will finally come alive with protocols like Account Aggregator and then with UPI credit or OCEN layered. It’s going to be a huge tool to enable financial inclusion. Of course, there is some friction since it’s early days. Many regulators and nodal agencies are involved, and data privacy and security policies will evolve. UPI also took several years to live but had fewer variable moving parts.

Sar: Yeah, it’s incredible how much of what comes from private sector innovation in the States comes from the Government in India. The way people talk about these public initiatives in India is how Americans talk about the startup winners across categories. You have been talking about the transformative power of UPI, which I can see and agree with. Even though I grew up in India, I feel weird not using cards when I return after spending all these years in the US. For example, I’m often one of the few who pulls out a card to pay in coffee shops. Do you believe UPI is at odds with credit card adoption in the country?

Priyanka: Not really. Credit card adoption has been increasing along with UPI growth. I believe these are fundamentally different products for different segments and use cases. A card is only a form factor; it is the underlying interest-free credit limit or, for some, the rewards that make the credit card an exciting proposition. Whatever the rails, be it card or UPI, short-term credit as a product is still highly underpenetrated in India and will only go up.

The credit card market in India has, for a very long time, been dominated by the top 5-6 banks and concentrated among the top 30-40M customers. With more banks coming into the picture with BaaS-driven platforms, emerging regulations around UPI credit, NBFC credit card licenses becoming a reality, and India becoming a super data-rich economy, the growth in short-term credit (/credit cards) is only just starting.

We often hear from banks, NBFCs, and fintechs about wanting to launch an innovative credit card targeted at an underpenetrated segment with a new experience and underwriting policy for customers. So the monetizable user base has increased faster than in any other country. That is a net positive for fintech as long as they can figure out how to work within regulations. And this is where BaaS platforms will also play a huge role going forward.

Sar: There’s a saying in the consumer world that India is a fantastic DAU farm for global tech companies. When you look at Disney or Facebook, they have a large user base in India but with minimal ARPU potential. I think a parallel is playing out in fintech. Do you believe that that means most companies have to take B2B route, at least in the short term? Making money on money movement no longer seems viable. If you look at consumer players like the Cash app and Venmo in the US, they still charge for faster transfers to your bank account. It’s an optional feature.

Priyanka: Didn’t Venmo not make money for the longest time?

Sar: Oh yeah. Venmo was an amazingly loss-making business for the longest time. I've been using it for nine years. I've never paid them.

Priyanka: Right. I'm starting to see some fascinating use cases because I have the advantage of catching companies early, given what we do at Falcon. It’s hard for consumer companies, but some targeted use cases are coming up. People are building new fintech companies for students, employees, and healthcare. While some of these will have strong inherent unit economics like cross-border flows, credit, and savings accounts – for others, money will be made in value-added services in consumer fintech, and you will have to play the long game.

Sar: I think that’s primarily been the case for mass market consumer financial services in most countries. Many lean heavily into lending in different ways and often get into trouble once the regulators wake up. In the States, earned wage access apps, which let you access money in advance of you getting your paycheck, got in trouble for what are effectively high APR loans. I agree with your implicit point that what we see in consumer fintech in India is not unique.

We are deep in our conversation now, so let’s finally talk about Falcon. So what's the current status of Falcon? What do you do now? What are the plans? What kind of companies do you guys work with?

Priyanka: We’re a full-stack BaaS platform. Both financial institutions and tech companies today are struggling to launch Fintech products. No matter the core business or size of operation – tech companies and financial institutions – can use Falcon’s stack to build bespoke cards, payments, accounts, and lending products fast.

We have two models – the stack can be embedded via flexible open APIs–we call that Falcon Dive–or launched instantly with no-code solutions that we call Falcon Dart.

This space will keep growing in the next ten years. Two major trends are taking place. One trend is what everybody's been talking about nonstop: embedded fintech, i.e., every company becoming a fintech. The distribution of fintech products is changing. Suppose a farmer wants a savings account or a lending product. They’re probably going to get it from a company that's working with them already on helping them improve their agriculture techniques or machines. I love that trend. You need many-to-many integrations to make this work because you can't depend on just one banking partner. You need redundancies everywhere. You need backups everywhere. We enable that. Banks or fintech companies doing that by themselves are just not going to work.

Sar: Right, it’s a nightmare!

Priyanka: Yes! Working with one bank to launch one product is hard enough. I've seen so many really smart founders never able to take their companies off the ground because of the complexity of these integrations.

India's not a single product market. So everybody wants everything, which means lots of layering and integrations. But companies want a single platform to talk to; they want speed. They don't want to go through all of this mess. They want to focus on their core business and build their core product. And these are some of the largest companies that come to me. I'm not even talking about smaller startups. I'm talking about people with hundreds of millions of dollars at their disposal coming to me and saying that I am not here to build infrastructure; I want to build differentiated experiences.

Sar: And, what is the second trend for why you are so bullish on embedded fintech infra for the next decade?

Priyanka: The second trend is that banks during COVID, more than ever before, have realized they don’t have the tech talent to pull off becoming back-end partners to all these companies wanting to launch fintech products or even for their own existing retail & SME base. They have very high attrition. Product managers and developers drive today’s world, and banks can’t talk to them in their language. We are working with some of the largest banks. They want to enable fintech. They want to look toward the future and for us to handhold them. We operate on an opex model; we enable these financial institutions to launch as quickly as possible and work as true partners. We're already integrated with multiple banks and non-bank FIs.

Sar: Do you focus on specific verticals?

Priyanka: Yes, we double down on specific product lines and industries we’ve built our 36-48 month thesis around. Some industries exciting us the most include FIs (Banks, Small Finance Banks, Payment Banks, Prepaid Payment Instruments), digital lending (Non-Banking Financial Corporations), commercial payments, cross-border, and gaming.

Sar: Walk me through your product categories.

Priyanka: We support four major product categories – cards and wallets, real-time payments, accounts, and lending. We call some of these our “hero” products because they are the ones that customers want the most and have higher margins, such as cards, UPI credit, and accounts. Other products are “supplementary,” which are often bundled with the heroes like virtual accounts, real-time payments, and new ones like Fastag & BBPS. We’re constantly focusing on prioritising products that our customers want and that our thesis supports.

Sar: What kind of products are on the horizon?

Priyanka: UPI on PPI is new feature companies are excited about. A massive upcoming trend is programmable savings & current accounts plus UPI credit. These are fairly new for the Indian market and issuers, so we’re excited to be among the first to build around this. Another area where BaaS will play a huge role in India is figuring out digital lending integrations keeping in mind new RBI regulations.

Sar: Within cards, you do debit, credit, charge, and prepaid cards. It’s not common to see an issuer do debit and credit cards in the US.

Priyanka: The two ecosystems are so widely different from each other. America has always been such a mature credit card market. You have credit for everything in the US, right? In the US, companies don't need to have so many products. You’re good to go if you have this one product line that works well and people want it. But it’s slightly different in India because so few people have historically even qualified for the credit. So other product lines act as an entry point, and credit is then layered on top of those.

Sar: Your ambition is to become the middle layer between all these financial institutions and companies that want to launch financial products. What are your plans for the future? Any predictions for what the world of financial services will look like in five years in India?

Priyanka: What we’re most excited about in the next five years is this trend of Indian companies building for the world, building Global BaaS, the same way this happened with SaaS in the last decade. I think governments and regulators everywhere want to adopt this model since it is in the consumer's best interest. So going forward, BaaS players in India will have a huge advantage in scaling globally because they are pioneers. So it’s an exciting time to scale some of our learnings from India to other geographies.

In India, we’re seeing that first, in the same way, India leapfrogged to UPI, financial institutions are also leapfrogging to modern BaaS. While the top banks are pioneering the trend, this is even more of a leap for the long tail of financial institutions like emerging banks and lending companies. Second, several protocols like UPI and Account Aggregator will be turned into monetizable products now that the foundation is ready. So with something like UPI credit, we expect more than 100 million new credit customers to enter the formal economy. That’s huge for everyone – for fintechs, financial institutions, BaaS players, networks, really–everyone.

So definitely more bullish on this space than ever – at Falcon, we have the ambition to build in India, for the world, and we’re going after that. For businesses and their customers, that means putting the power of distributing financial products in the hands of any company, which is already improving how people earn, spend, save, and invest – the way people live. And for financial institutions, it means helping them transition to modern fintech, to help them become forward-looking players in this massive transition.