India’s enterprise fintech industry is poised to touch a market size of $20 billion driven by sectors like banking, lending, payment, and insurance even as funding for the segment has come by nearly 53% to $2.4 billion in 2023 due to an overall slowdown in funding activity.
Chiratae Ventures, in collaboration with The Digital Fifth, has released a report titled 'Unlocking Indian Enterprise Fintech' which highlights the key essential sectors within B2B SaaS as BankingTech, LendingTech, PayTech, RegTech, InsurTech, and WealthTech.
“The year 2024 is going to be calm in terms of funding, seed, and early-stage will build momentum and later-stage companies will work on their path to IPO and the funding interest to profitable companies will be higher,” said TC Meenakshisundaram, Founder and Vice-Chairman of Chiratae Ventures to Moneycontrol.
Chiratae Ventures is a 17-year-old Indian technology venture capital fund and has around six funds with $1.18 Bn AUM across 130 investments. Digital Fifth is a fintech and digital finance consulting & advisory firm
The backbone of digital innovation within the sectors is revolutionary with public infrastructure like the India Stack, Account Aggregator, ONDC, KYC, and DBU regulations.
“The recent Digital Personal Data Protection Act (DPDP) of 2023 will also push financial institutions and their partners to reorient their architecture and business for better data governance,” the report said.
According to the report, the total funding for the fintech segment has come down by 52% to $2.4 billion in 2023, as against $5.1 billion in 2022. The fintech segment received the highest funding in the year 2021 at $6.9 billion.
Out of the total funding, B2B funding contributed around $0.5 billion in 2023 and $1.7 billion in 2022.
“The decline is a reflection of the funding winter from 2022 and 2023, and some of the startups in the year 2021 got excessively funded and would still have a runway. I think many of them are not in a hurry to raise now,” Meenakshisundaram said.
Meenakshisundaram also added that there is scope for inorganic growth opportunities as the fintech segment is getting consolidated and going global.
“Enterprise Fintech has demonstrated active deal-making in the past, and this is only expected to increase as incumbent players demand updated stacks and scaled Fintechs look to grow beyond borders,” he said.
Top fintech investors of 2023 include YCombinator with investments in 22 companies, TigerGlobal with 17 companies, and 9Uniconrs with 11 companies.
Chiratae Ventures had also invested in 11 firms like Kristal, Fibe, ShopSe, CreditMantri, and more in 2023. The venture firm has said that it will continue to invest in early-stage startups in 2024.
“At Chiratae, we are excited about areas such as Cross-borderPaaS, Cash Management, Financial Services in ONDC, Collections, Lending as a Service, and Loan Origination System/Loan Management System,” the report said.
The report said several fintechs and embedded finance players are driving customer engagement in partnership with banks.
“Large banks have started investing heavily in technology and are focusing on scaling their digital business which is being replicated by small and mid-sized banks…, and this digital push is gradually expanding to complex business banking, including Trade Finance and Treasury,” the report said.
India is the ninth largest Life Insurance market globally and is expected to reach USD 200 bn by 2027, the report said.
“India's Wealth Management sector is experiencing growth with increasing asset classes, new entrants, and tech investments. The country has shifted to an investment mindset, with a declining focus on traditional physical assets,” Meenakshisundaram said.
Key focus on regulations
Tight regulations might have a short-term impact within the fintech ecosystem, however, in the longer run, it will help in corporate governance, giving clarity to all players and building stronger fintech companies, Meenakshisundaram said.
“Regulatory frameworks around Digital Lending have continued to evolve and are positively influencing technology spend by lenders. Lenders are experimenting with innovations like Pre-Approved Loans, B2B BNPL, Supply Chain Finance, and Secured Credit,” as per the report.
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