Investor-favorite fintech sector hit by downturn; funding in start-ups fell 47% in 2022

Fintech, the darling of private market investors for years, is going through a period of decline. Funding in fintech start-ups fell 47 percent to $5.65 billion in 2022, according to data from Tracxn. The decline in funding was caused by a 56 percent drop in late-stage deals from $8.3 billion in 2021 to $3.7 billion in 2022.

The total number of fintech funding rounds also fell by 29 percent to 390. In addition, large $100 million+ rounds fell by 50 percent to 13 over the year. “There has been a constant decline in funding of more than 30 percent in every quarter of 2022,” Tracxn revealed in its Fintech India Report – 2022.

However, Fintech remained the second most funded sector in India, behind only Enterprise SaaS. Y Combinator, Tiger Global and LetsVenture emerged as the most active investors in the space, with more than 20 deals in 2022. Fintech also added fewer (4) unicorns last year, compared to 13 the year before. These included Yubi, Oxyzo, Open and OneCard.

Given the lack of free-floating venture capital, many start-ups were faced with a funding crisis, forcing them to either lay off employees or sell out to larger players. As a result, consolidation picked up in the fintech sector. “The number of acquisitions increased by 33 percent from 30 in 2021 to 40 in 2022. This increase is the result of consolidations occurring across industries due to falling valuations of start-ups and more opportunities for large players to expand their operations,” according to Tracxn .

Razorpay’s $200 million acquisition of Ezetap, which moved into offline payments, was the largest fintech merger and acquisition.

Despite a somewhat humiliating 2022, India’s fintech start-ups have managed to raise a whopping $16.5 billion in venture capital over the past two years. It is a critical sector for the country’s economic growth, and its long-term outlook remains positive.

“The drive towards digitization since the pandemic has significantly accelerated the adoption of fintech solutions. Digital payments and lending, previously concentrated only in the big cities, are now becoming mainstream even in Tier 2 and 3 cities in the country,” Tracxn said.

It also added: “The convenience of using these services, compared to our traditional financial infrastructure has also attracted many users. A large unbanked population and increasing mobile usage are some of the factors that will help the sector’s growth in the long term.”

Also read: Sequoia-backed cloud kitchen unicorn Rebel Foods is firing close to 2% of its workforce