Over 35 mature fintech startups emerge with multiple eyeing IPO opportunity: Report

According to the report titled State of the Fintech Union 2024, “only 40-60% of fintech founders feel fully prepared in terms of profitability, leadership, and governance—critical factors for a successful IPO.”

Over 35 Indian fintech firms, each valued at $500 million or more, have reached a mature stage, up from just 13 in 2020, according to a report by Boston Consulting Group (BCG) and Z47 (formerly Matrix Partners India).

While this growth signals the sector's rapid maturation, the report also highlights that multiple fintech startups are now contemplating or approaching the IPO stage, reflecting the competitive race for public capital in the coming years.

Typically, Indian startups take around 3.5 to 4 years to go public after achieving unicorn status, and the current market momentum is undeniable, the report said. Overall, IPO filings have surged, nearly doubling from 75 annually in 2018-2019 to 120-140 per year between 2021 and 2023.

However, while Indian markets remain bullish, competition for capital across sectors is fierce.

According to the report titled State of the Fintech Union 2024, “only 40-60 percent of fintech founders feel fully prepared in terms of profitability, leadership, and governance—critical factors for a successful IPO.”

The report further highlights that “nearly 70 percent of fintechs listed in India over the past five years saw their share prices decline within six months of listing,” underlining the challenges post-IPO. “Successful IPOs will require a clear equity story backed by strong fundamentals in financials, governance, and a well-run IPO office that prepares not just for the journey but also for the expectations post-IPO,” the report said.

Fintech companies such Mobikwik have filed their draft IPO papers and are in the process of listing this year while others like Phonepe, Groww, Perfios, PayU, Pine Lab, Fibe among others have shown interest in going public in the next two to three years.

Meanwhile, for the listed fintechs like Paytm and PB Fintech, the IPO stories were not well received by the public market at large leading to a dip in their stock performance post IPOs. However, a sharp correction is being witnessed since past year on the back of growth numbers.

The report also emphasises that pre- and post-IPO fintechs are increasingly focused on unit economics, profitability, and investments in technology, infrastructure, and security.

While market share and growth remain the primary goals for segments like LendingTech, InsurTech, and SaaS/InfraTech, PayTech firms are prioritising unit economics. The profitability outlook is improving across segments, with Neobank and InsurTech showing the most significant positive shifts since 2022.

The Indian fintech ecosystem, now cumulatively valued at over $100 billion, is still in its "middle" phase of development, with the potential to create 2-3x value in the next decade.

“India remains one of the top three fintech destinations globally, with a 3.5x increase in Minicorns and a 3x rise in Unicorns and Soonicorns over the past four years,” it added.

The fintech sector has also driven significant financial inclusion, achieving a remarkable 56percent revenue growth from 2022 to 2023, compared to the global fintech growth rate of just 13 percent during the same period.

Despite generating over $100 billion in value over the last decade, Indian fintechs are still in the early stages compared to traditional financial institutions, which have created $600 billion in value over the past 30-50 years.

With 63 percent of the Indian population residing outside major cities, there is a substantial opportunity to serve the "Bharat" market, particularly in Tier 2 cities. A survey of over 60 fintech executives revealed that market share expansion and growth are top priorities for early and growth-stage fintechs.

However, the industry faces challenges, particularly in cybersecurity. Over the past two decades, more than $20 billion has been lost to cyber and digital attacks. Compliance is another critical area, with the number of fines for non-compliance surging.

The report emphasizes that compliance needs to be a “feature” and not a “fix,” and robust risk management is seen as the most critical factor by over 80 percent of respondents for strengthening governance and creating better partnership opportunities with incumbents.

The regulatory environment in India is generally conducive to innovation, with 75 percent or more respondents expressing a positive or neutral view on recent progressive regulatory moves like the Account Aggregator (AA) framework, the Self-Regulatory Organization (SRO) for fintech, and the Digital Personal Data Protection (DPDP) bill.

While sentiment around the regulatory system is strong and supportive, there are emerging pain points regarding the need for greater clarity and simplification of complex processes.