Fintech funding cools in CY22
Funding for fintech start-ups has slowed in the current calendar after a massive bull run the year before. Funding in the sector peaked in the fourth quarter of 2021 and has been on a downward trend since. According to Tracxn’s latest report, funding to Indian fintech fell by 50% quarter-on-quarter in Q1 2022, compared to Q4 2021, and the trend continues with a 16% QoQ drop in Q2 2022.
Paytm’s underwhelming IPO performance, upcoming regulatory reforms and the predicted slowdown in the economy are some of the factors responsible for the decline, the report pointed out. August 2022 saw the largest drop in funding in CY2022 with a month-over-month decrease of 51.3% compared to July 2022 and a 38% decrease compared to August 2021.
Funding for fintechs reached record levels in CY2021, peaking at $10.2 billion across 543 rounds, which was the highest since 2017. However, as of CY2022 (to date), there has only been $4.9 billion worth of funding in the segment over 301 laps. Currently, Bangalore leads in the maximum total funding, followed by Mumbai and Delhi in 2022 to date, while Y Combinator, Tiger Global and Better Capital are the most active investors in Fintech in 2022.
Read also| Fintech company CRED named top startup for this year
The biggest impact on the decline in fintech funding was seen in late-stage funding, which saw a record 71% decline in August 2022 compared to July 2022 and a 45% decline compared to August 2021. However, India has outperformed its peers during this period. India’s market share in terms of global funding for the Fintech sector has increased to 6.1% in the first eight months of 2022 compared to 5.1% in the same period last year, the report added.
Read also| The government for the banks to collaborate with NBFCs and fintech companies, says the official
According to Tracxn, some 8,891 fintech startups were founded in the country between 2017 and 2022, of which 16% (1,426) received seed or angel funding, while 22% (318) received Series A funding in the same timeline. While only 4% (50) of the total 8,891 fintech startups founded in the same timeline reached the Series D stage.
In terms of fintech categories, alternative lending, payments and investment technology platforms raised the highest funding in 2022. Alternative lending platforms including Oxyzo and EarlySalary have raised the highest funding of $200 million and $110 million respectively in 2022 to date, while payments company Pine Labs raised $200 million in two rounds this year. Since the beginning of 2022, four new unicorns have been added, two from alternative lending, and one each from payments and banking technology. August 2022 saw no new unicorns
On the other hand, Buy Now Pay Later (BNPL) startups in India such as LazyPay, Slice, Uni Pay, etc. had to significantly change their offerings to comply with RBI’s new guidelines that prohibit non-bank fintechs from loading prepaid instruments using credit lines.
“BNPL is also struggling globally. European fintech Klarna, US listed Affirm have seen a significant fall in valuations. Big players like Apple, PayPal, Goldman Sachs, etc entering the market, decline in demand and generally low credit quality of their user base are some of the factors responsible,” Tracxn said in its report.
