The Indian fintech sector in India recorded a 63 percent drop in funding in 2023 with early stage cheques taking the highest hit. Startups in the fintech space managed to raise a total of $2 billion compared to $5.4 billion in 2022, and $8.4 billion in 2021, said a report by market intelligence platform Tracxn.
The report attributes the drop 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.
The slowdown was seen across deals. Late-stage rounds in 2023 were down by 56 percent at $1.4 billion, while early stage and seed-stage rounds dropped by 73 percent and 69 percent.
A total of 144 funding rounds took place in the last 12 months against 504 in 2022.
Single unicorn, payments, banking tech at top
InCred was the only company to become a Unicorn in 2023, as against five new unicorns in this space the year before.
Despite the freeze, Indian fintech ecosystem retained its spot (third) in terms of funding received in 2023. It continues to count itself among the world’s top-funded spaces and is also the fourth highest-funded startup ecosystem in the fintech sector globally, to date.
“The government has recently allocated about $16.7 billion towards the BharatNet project to increase broadband connectivity within rural areas. This will help in increasing the reach of digital banking and other fintech solutions in rural areas and potentially bring about more investments into the sector,” the report said.
The increasing adoption of UPI and government measures have helped broaden the scope of the Indian payment sector, and consequently the capital flow in the same.
Though on a decline, startups building in the payments pace raised $753 million in 2023.
The banking tech and alternative lending firms also managed to secure $835 million and $331 million.
In 2023, limited fintechs got hold of large cheques of over $100 million, expect a few names like Perfios, a real-time credit-decision platform, and Mintifi, an online marketplace for business loans.
At the same time, the momentum of M&A activity in the space was consistent.
While the deal sizes and number shrank, consolidation in the space continued with a total of 31 acquisitions in 2023, including TrillionLoans (BharatPe), Goals101 (M2P), and Upwards (LendingKart).
We Founder Circle, Y Combinator, and 100X.VC was the top investor in seed-stage rounds; Accel, Omidyar Network India, and Elevation were at the top of early-stage rounds, while OP Finnfund Global Impact Fund was the leading late-stage investor in 2023.
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