Indian fintech funding slumps nearly two-third in 2023: Report (2024)

However, India ranked third globally in terms of FinTech startup funding last year, strengthening its position as a significant player on the global stage, despite the challenges posed by factors including increasing borrowing costs and macroeconomic conditions, among others.

Alternative Lending, Payments, and BankingTech were the top-performing segments in the Indian FinTech sector, while the Peak XV Partners, Y Combinator, and LetsVenture were the top investors in the space.

Speaking about the report, Tracxn cofounder Neha Singh said, “Despite a 63% decline, our sector stands strong as the third-highest funded ecosystem globally. The implementation of regulatory measures and the government's commitment to digitalization have set the stage for a promising future."

Last year, the late-stage rounds secured $1.4 billion in funding, reflecting a 56% drop compared to the $3.2 billion raised in 2022, while the early-stage rounds faced a similar trend, with funding plummeting to $489 million, marking a stark 73% decline from the $1.8 billion raised in 2022.

Seed-stage rounds were also not immune to this downward trajectory, securing $145 million, a 69% drop compared to the $474 million raised in the preceding year, the Tracxn report added.

Bengaluru emerged as the leader in total FinTech funding raised in 2023, followed by Mumbai and Jaipur. Also, there are only two companies ‘Zaggle’ and ‘Veefin’ that announced IPOs in 2023 as compared to five in 2022.

‘India as global fintech powerhouse’

There are several factors including a young tech-savvy population, affordable mobile devices, initiatives by the government for digitalization, and others, to account for optimism for long-term growth in the fintech sector, said Hyperface cofounder Ramanathan RV.

“With initiatives like BharatNet bridging the digital divide, I am convinced that we’re on the cusp of a major positive shift. As we step into the new year, I foresee a resurgence in funding, reinforcing India’s position as a global FinTech powerhouse," he told LiveMint.

Ranvir Singh, spokesperson of Kissht and RING also believes that the coming year should also see “specialization" in a full-blown manner.

For example, within lending, there are specialized players focused on algorithm-led underwriting (unsecured loans, supply chain finance, etc.), technology companies providing SaaS platforms, or companies with specific functional capabilities (such as collections, customer validations, etc.), he said.

Speaking about IPOs, Singh said, “We see more IPOs in 2024 as many companies have built healthy revenues and RoEs, and public markets may provide avenues for capital raising at a decent valuation."

India saw a big drop in funding from investors because investors became less willing to take risks initially because of the COVID-19 pandemic and then economic uncertainty and rising international tensions around the world, according to Manan Dixit, Founder of Fidypay.

“Getting this situation under control in 2024 will require a multifaceted strategy. Making the economy clear and stable is very important for restoring investor trust. Getting rid of regulatory uncertainty and making policies clear can restore faith in the business landscape," Dixit said.

“India might be able to get the startup funding it needs in 2024 if it embraces new ideas, builds trust among investors, and makes a setting that is good for long-term growth," he told us.

Additionally, the government can also offer tax breaks to venture capital firms and encourage investments in key areas to attract investors.

Initiatives to collaborate between the public and private sectors, such as mentoring programs and opportunities to meet new people, can spark the entrepreneurial spirit even more, Dixit added.

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Published: 05 Jan 2024, 03:03 PM IST