Industry leaders doubt fintech’s profitability in the next few years: report
This is despite India being a bedrock of fintech innovation globally, with unique local innovations such as the Unified Payments Interface (UPI) railway and the home-grown RuPay card system.
According to the report, more than 70% of respondents believe that most Indian fintech firms may not be profitable in the next 2-3 years due to increased focus on scale as opposed to profitability and compliance.
This is further supported with industry leaders pointing to product expansion, customer service improvement and hiring as top priorities for the industry at the moment.
The report includes results from a survey of over 125 founders and senior management at leading Indian fintech firms.
According to the Matrix-BCG report, Indian fintech firms have raised $29 billion in venture funding between January 2017 and July 2022 across 2,084 deals.
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With 37 listed Indian fintech unicorns – or startups valued at $1 billion more – by July 2022, India ranks fourth in terms of global fintech unicorns, after the US, UK and China.
Furthermore, there are close to 8,000 fintech firms in India currently.
“We are at a crossroads in the India fintech story with skeptics raising many questions. Indian fintechs have undeniable scale, delivered superior value to customers and have proven resilient through a once-in-a-lifetime crisis of Covid-19,” said Vikram Vaidyanathan, CEO, Matrix India.
According to the report, equity funding for Indian fintech firms has grown at a 26% compound annual growth rate (CAGR) over the past four years, but faster from 2020 onwards, driven by the post-pandemic growth through increased adoption of digital services.
However, only $3.5 billion was invested in Indian fintech during the first half of 2022, as global macro headwinds continue to affect fundraising for Indian startups, the report highlighted.
“The fintech sector is mission critical for the Indian economy; 36% of fintech customers are new to credit, compared to 22% for banks. This means a greater focus on profitability and management, says Yashraj Erande, managing director and partner at BCG.
According to the industry leaders surveyed for the report, short and unsecured lending continued to be the top choices among survey respondents as areas ripe for disruption.
More than 50% of survey respondents believed that asset quality, customer acquisition costs and regulations were the biggest challenges to sustainability.
