Bengaluru: India’s fintech startups raised a total of $2 billion in 2023, the lowest funding in three years, with just five of them snagging more than $100 million each, a Tracxn report released on Thursday said, as high interest rates globally dampened investor sentiment.
The five startups are Perfios, Mintifi, InsuranceDekho, PhonePe, and KreditBee. InCred was the only fintech to reach a unicorn ($1 billion) valuation in 2023 after it raised $60 million from investors.
The slump in fintech funding is part of the broader cash crunch in the Indian startup ecosystem over the past two years.
The Tracxn Geo Annual Report on Indian fintech attributed the steady decline in funding and the investor scepticism in the fintech segment to high borrowing costs and challenging macroeconomic factors.
In 2023, the fintech sector amassed $2 billion, which represents a 63% decline from a year earlier, and a 76% fall from 2021, the report said.
The Tracxn report added that only five rounds have surpassed the $100-million mark, with late-stage rounds witnessing a 56% drop in fund inflows, while early-stage and seed-stage rounds seeing a 73% and 69% drop, respectively. Peak XV Partners, Y Combinator, and LetsVenture were the top investors in the space.
The volatile nature of the market has made investors extremely cautious in conducting due diligence into every aspect of the business, which has led to a downturn in funding.
As a result, InCred was the only unicorn last year, while just two companies- Zaggle and Veefin, announced IPOs, in comparison to five companies that went public in 2022.
Still, the sector is expected to see long-term significant growth, aided by a larger customer base and government-driven initiatives, the report said.
“The implementation of regulatory measures and the government’s commitment to digitalization have set the stage for a promising future,” Tracxn’s co-founder Neha Singh said.
Sub-sectors such as alternative lending, payments, and banking tech were the top-performing segments, with BNPL (buy now, pay later) seeing significant growth due to its rampant adoption in the country.
In 2023, alternative lending received fund inflows of $835 million, a 63% drop from a year earlier, while payments sector witnessed funding of $753 million, a 41% slump from the previous year. The banking tech segment funds fell by more than 50% to $331 million in 2023.
The Indian banking sector as a whole has greatly benefitted from the rise in internet and mobile device penetration in cities and rural areas. This increase in digitization has encouraged banks to integrate technology to their operations through partnerships with fin-tech companies.
“The Digital Personal Data Protection Act was recently implemented by the Government of India, which will ensure more transparency and customer trust in the sector. This can potentially benefit the digital lending space, which is increasingly relying on customer data for its product marketing and development,” the report said.
InCred was the only fintech to turn unicorn after it raised $60 million
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Published: 04 Jan 2024, 11:06 PM IST