India’s fintech space, considered to be the second-largest funded ecosystem after the US, witnessed an uptick in funding from the previous quarters. Fintech startups in the country attracted investments worth $1.2 billion in Q1 2023, a sharp jump of 126% compared with $523 million raised in Q4 of 2022, according to a report compiled by market intelligence platform Tracxn.

However, the total funds raised were 55% lower than $2.6 billion raised in Q1 2022. The number of funding rounds in Q1 2023 also experienced a drop of 77% and 39% against Q4 2022 and Q1 2022, respectively.

Tracxn further said that the sector recorded late-stage investments of $977 million in the first three months of 2023, a spike of 325% compared with Q4 2022 but a drop of 44% from Q1 2022.

Early-stage funding for fintech startups during the quarter was $177 million, down 30% and 76% from Q4 2022 and Q1 2022, respectively. Seed-stage funding of $30.2 million was observed during this quarter, a fall of 21% and 74% from Q4 2022 and Q1 2022, respectively.

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Sequoia Capital, AngelList and Y Combinator were the most active investors in India’s fintech space. Y Combinator, LetsVenture, and Premji Invest were the top investors in Q1 2023. Y Combinator, 100X.VC, and LetsVenture were the top seed-stage investors. Xceedance, Telama Family Office, and CourtsideVC were the top early-stage investors, while Premji Invest, General Atlantic, and TVS Capital Funds were the top late-stage investors.

The fintech sector observed six $100-million funding rounds in the first three months of 2023. Companies such as PhonePe, Mintify, Insurance Dekho and KreditBee raised funds above $100 million during this period.

It was an uneventful quarter in terms of IPOs and unicorns. No companies from the fintech space went public in Q1 2023, and there were no new entrants to the unicorn club. However, there was a slight uptick in acquisitions. The sector witnessed 11 acquisitions in Q1 2023, against six acquisitions in Q4 of 2022.

Among Indian cities, fintech companies in Bengaluru took the lead, raising $796 million in the first quarter of 2023. This was followed by Mumbai and Gurugram, which raised $222 million and $151 million, respectively, during the quarter.

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“Further, the government’s push to promote a cashless economy combined with rising internet penetration in both rural and urban areas has contributed substantially in developing this sector within the country,” Tracxn said in its report.

India continues to be an attractive market for fintech investors for several reasons. Digital payment solutions have received widespread acceptance within the country. According to numbers released by the Reserve Bank of India (RBI), 128 million retail digital payment transactions worth $600 billion were processed in January 2023 alone. Also, new regulations introduced in the country, such as restrictions on access to user data, among others, will help in promoting the safety and privacy of users.