Funding into fintech start-ups have tapered off in the current calendar after a massive bull run in the previous year. Funding in the sector peaked in the fourth quarter of 2021 and has been on a declining trend since. According to Tracxn’s latest report, funding into Indian fintech declined 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 results, forthcoming regulatory reforms, and the predicted slump in the economy are some of the factors responsible for the slowdown, the report pointed out. August 2022 saw the biggest drop in funding in CY2022 with a month-on-month decline of 51.3% compared to July 2022 and a decline of 38% in comparison to August 2021.
Funding into fintechs hit record highs in CY2021 topping at $10.2 billion across 543 rounds, which was the highest since 2017. However, as of CY2022 (year to date), there has only been $4.9 billion worth of funding into the segment across 301 rounds. Currently, Bangalore leads in the maximum total funding raised, followed by Mumbai and Delhi in 2022 till date while Y Combinator, Tiger Global, and Better Capital are the most active investors in Fintech in 2022.
The highest impact in fintech funding slowdown was seen in late stage funding, which saw a record decline of 71% in in August 2022, comparted to July 2022 and a 45% decline compared to August 2021. However, India has been performing better than its peers during this period. India’s market share in terms of global funding for Fintech sector has increased to 6.1% in the first eight months of 2022 as compared to 5.1% in the same period last year, the report added.
According to Tracxn, around 8,891 fintech start-ups were founded in the country between 2017 to 2022, out 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 start-ups founded in the same timeline reached the Series D stage.
In term of fintech categories, alternative lending, payments, and investment tech 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 till date while payments company Pine Labs raised a total of $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 tech. August 2022 saw no new unicorns
On the other hand, Buy Now Pay Later (BNPL) startups in India like LazyPay, Slice, Uni Pay, etc had to significantly alter their offerings to comply with RBI’s new guidelines that prohibit non-bank fintech businesses from loading their prepaid instruments using credit lines.
“BNPL is struggling on a global level as well. European fintech Klarna, US public listed Affirm has seen a significant drop in valuations. Big players like Apple, PayPal, Goldman Sachs, etc entering the market, slowdown in demand, and overall low credit quality of their user base are some of the factors responsible,” Tracxn said in its report.