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For a number of reasons, India remains a desirable market for fintech investment. In the nation, the adoption of digital payment methods is prevalent.
The Reserve Bank of India (RBI) reported that in January 2023 alone, 128 million retail digital payment transactions totaling USD 600 billion were handled. Some new laws that have been passed in the nation, like those that limit who can access user data, among other things, will support user safety and privacy. Additionally, the government's efforts to encourage a cashless society together with increased internet usage in both urban and rural regions have made a significant contribution to the growth of this industry in the nation.
As per the Economic Survey 2022-23 conducted by the Government of India, Indian fintech companies have witnessed a staggering adoption rate of 87% which beats the global average by 23%. With over 2100+ fintech companies, India is the third-largest fintech ecosystem in the world.
The funding winter that the world has been going through has affected the fintech sector in India. Fintech businesses have, however, been able to acquire funding despite the challenging market conditions, according to Avinash Ramesh Godkhindi, MD and CEO of Zaggle, an IPO-bound B2B SaaS fintech startup that raised INR 50 crore in debt funding in March from alternative investment fund platform Vivriti Asset Management (VAM).
"For instance, several fintech startups have increased the range of goods they offer to include digital lending, insurance, and investment services in order to increase their revenue and draw in more clients. In addition, instead of just depending on fundraising, fintechs now prioritise profitability, long-term growth, and service quality improvement while also considering debt financing as a potential fundraising substitute," Godkhindi says.
The first quarter of 2023 saw investments in the nation's fintech startups totaling USD 1.2 billion, a 55% decrease from the USD 2.6 billion raised in the first quarter of 2022. But when compared to the USD 523 million raised in the fourth quarter of 2022, this is a dramatic increase of 126%, according to information provided by Tracxn, a SaaS-based market intelligence platform.
India is the second-highest financed territory in the fintech sector after the United States in Q1 2023, according to Tracxn's Geo Quarterly FinTech India Report - Q1 2023. It also ranks among the top five geographies in terms of overall funding activities. Despite an increase in funding over the past few quarters, the budget is still on a downward trend when compared to prior years. In the first quarter of 2023, the industry saw late-stage investments total USD 977 million, up 325% from the fourth quarter of 2022 but down 44% from the first quarter of 2022. Early-stage funding fell by 30% and 76% from Q4 2022 and Q1 2022, respectively, to USD 177 million during the quarter. Seed-stage funding dropped by 21% and 74% from Q4 2022 and Q1 2022, respectively, during this quarter, totaling USD 30.2 million.
The CEO of Mumbai Angels, Nandini Mansinghka, predicts that this year will also see rapid growth in the fintech sector in India. "Government and policy levels have consistently supported fintech, and with the emergence of a digital India, the industry is anticipated to continue to expand. Instead of the proverbial funding winter, the early-stage investments market has seen a rationalisation of value, which is positive for both businesses and investors in the long run," Mansinghka adds.
Y Combinator, Sequoia Capital, and AngelList were the most prevalent investors in India's fintech industry. In the first quarter of 2023, the biggest investors were Y Combinator, LetsVenture, and Premji Invest. The three leading seed-stage investors were Y Combinator, 100X.VC, and LetsVenture. The top early-stage investors were Xceedance, Telama Family Office, and CourtsideVC, while the top late-stage investors were Premji Invest, General Atlantic, and TVS Capital Funds.
Given the size, scope, and complexity of the sector, India has the potential to become the fintech capital of the globe, highlights Ninad Karpe, Partner, 100X.VC. "Investors are always looking for innovation in this sector and in the current year, this trend will continue. The funding pattern for this sector in a particular quarter can get skewed by large deals and the overall sentiment remains positive. The robust public digital infrastructure built in India will become a highway for fintechs to build new products," Karpe mentions.
In the first three months of 2023, there were six USD 100 million fundraising rounds in the fintech sector. During this time, companies including PhonePe, Mintify, Insurance Dekho, and KreditBee raised more than USD 100 million in funding.
According to Wendy Werner, Country Head for IFC India, that took part in Premji Invest-led USD 110 million Series D fundraising round of Mintifi in March, "Supporting innovative fintech solutions is central to IFC's strategy of enabling greater access to finance for MSMEs and fostering financial inclusion in India and I believe Mintifi is well positioned to effectively address the unmet credit demands in this sector."
The report also stated that in terms of IPOs and unicorns, it was a quiet quarter. In the first quarter of 2023, no fintech companies went public, and there were no new members of the Unicorn Club. Acquisitions, however, saw a modest increase. In Q1 2023, there were 11 acquisitions in the sector, compared to 6 in Q4 2022.
Bengaluru takes the top spot among Indian cities for fintech companies, raising USD 796 million in the first quarter of 2023. Mumbai and Gurugram raised USD 222 million and USD 151 million, respectively, in the following quarter.
The development of financial technology has created new avenues for providing consumers with personalised and customised solutions. This year, the market noticed a rising trend of merging technology like AI, ML, blockchain, cybersecurity, and fraud protection with services like digital banking and mobile payments. Neo banks also give clients a holistic experience. Neo banking will experience an upward trend as long as consumers value the personalised financial solutions they offer. According to a recent analysis by Ernst & Young, the fintech business in India would generate USD 200 billion in revenue by 2030.
