Fintech funding in India faced a significant downturn in 2023, experiencing a 63% decline, reaching USD 2 billion, according to the Tracxn FinTech Report. This marked a stark contrast to the USD 5.4 billion raised in 2022 and USD 8.4 billion in 2021 respectively, reflecting a challenging year for the sector on both national and global scales.
Late-Stage Rounds Take a Hit; Early-Stage and Seed-Stage Rounds Plummet
Late-stage rounds in 2023 secured USD 1.4 billion, reflecting a 56% drop compared to the USD 3.2 billion raised in 2022. This decline indicates a cautious investor sentiment and increased scrutiny in the market.
Early-stage rounds faced a similar trend, plummeting to USD 489 million, marking a stark 73% decline from the USD 1.8 billion raised in 2022. Seed-stage rounds were also not immune to this downward trajectory, securing USD 145 million, a 69% drop compared to the USD 474 million raised in the preceding year.
According to the report, the drop was due to various factors, especially a conscious approach of investors towards the segment besides increased borrowing costs and macroeconomic conditions.
“Investors are now more conscious about due diligence into every aspect of a business before making investment decisions,” it said.
Top Investors and IPOs
Peak XV Partners, Y Combinator, and LetsVenture emerged as the top investors in the fintech space in 2023. The year witnessed five funding rounds surpassing the USD 100 million mark, showcasing pockets of resilience in the sector.
Two companies, Zaggle and Veefin, announced IPOs in 2023, compared to five companies that went public in 2022.
Bengaluru emerged as the leader in total fintech funding raised in 2023, followed by Mumbai and Jaipur, reaffirming their significance as fintech hubs in India's start-up landscape.
Industry Insights and Future Prospects
Despite the funding challenges, Neha Singh, co-founder at Tracxn, expressed optimism about India's fintech resilience. She highlighted the sector's strength as the third-highest funded ecosystem globally, attributing it to regulatory measures and the government's commitment to digitalization.
“In the dynamic world of fintech, India’s resilience shines through the funding challenges of 2023. Despite a 63 per cent decline, our sector stands strong as the third-highest funded ecosystem globally, affirming its position as a hub of innovation. The implementation of regulatory measures and the government’s commitment to digitalisation have set the stage for a promising future,” she said.
India, despite facing challenges such as increasing borrowing costs and macroeconomic conditions, secured the third position globally in fintech start-up funding in 2023, further solidifying its role as a major player on the global stage.
Sub-sectors such as alternative lending, payments, and banking tech were the top-performing segments in 2023. Buy now, pay later (BNPL) saw significant growth due to its widespread adoption in the country.
Mixed Fortunes for FinTech in 2023
InCred Stands Alone as a Unicorn
In the challenging landscape of 2023, InCred emerged as the sole fintech company to achieve unicorn status, a notable contrast from the five new unicorns in the previous year.
Limited Mega Deals
In 2023, a select few fintechs, including Perfios (real-time credit-decision platform) and Mintifi (online marketplace for business loans), secured substantial funding exceeding $100 million.
M&A Activity Persists
While deal sizes and numbers experienced a decline, the fintech space witnessed consistent consolidation with 31 acquisitions in 2023. Notable transactions included TrillionLoans (acquired by BharatPe), Goals101 (M2P), and Upwards (acquired by LendingKart).
Alternative Lending and Payments Face Funding Declines
The growing adoption of UPI (Unified Payments Interface) and supportive government measures have expanded the Indian payment sector's scope, contributing to a steady capital flow.
In 2023, alternative lending received fund inflows of USD 835 million, a 63% drop from the previous year, while the payments sector witnessed funding of USD 753 million, reflecting a 41% slump. The banking tech segment funds fell by over 50% to USD 331 million in 2023.
Government Initiatives and Regulatory Measures
The Tracxn report highlighted the positive impact of the Digital Personal Data Protection Act implemented by the Government of India. The act is expected to bring more transparency and customer trust to the sector, potentially benefiting the digital lending space that relies heavily on customer data for product marketing and development.
“The implementation of regulatory measures and the government’s commitment to digitalization have set the stage for a promising future," Neha Singh said.
Recent government efforts, including a $16.7 billion allocation to the BharatNet project for rural broadband connectivity, aim to enhance digital banking and fintech solutions' accessibility in rural areas, potentially attracting more investments into the sector.
In the face of a challenging funding landscape, India's fintech sector remains resilient, driven by a young tech-savvy population, a growing consumer base, and government initiatives towards digitalization. While 2023 presented a tough year for funding, the industry anticipates long-term significant growth, setting the stage for a promising future.
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