Indian Fintech Sector Funding Plunges 67% In H1 2023

The Indian fintech sector has encountered a challenging funding landscape during the first half of 2023, witnessing a staggering 67 per cent drop in funding compared to the previous year, according to the latest industry report released by market intelligence platform Tracxn.

During the initial six months of 2023, Indian fintech startups managed to secure a total of USD 1.4 billion in funding, a stark contrast to the robust USD 4.3 billion raised in the same period the year before. This trend is a continuation of the funding slump experienced during the second half of 2022, where the sector saw funding hover around a mere USD 1.5 billion.

Despite the funding downturn, India has managed to retain its position as the third most attractive destination for venture funding, following the United States and the United Kingdom, as highlighted in the report.

Top fintech investors included PeakXV, AngelList, and Y Combinator, contributing to the overall investment landscape in the Indian fintech sector.

The Tracxn report also revealed that early-stage investments faced an 81 per cent decline compared to the first half of 2022, while seed-stage funding experienced a significant 70 per cent drop. However, a notable shift occurred in late-stage funding, which dominated the scene with an infusion of almost USD 1.1 billion.

Remarkably, the first three months of 2023 alone saw fintechs raise approximately USD 1.2 billion, accounting for more than 80 per cent of the total funding secured throughout the six-month period.

Bengaluru emerged as the leader in attracting venture capital, with nearly USD 950 million being poured into fintechs based in the city. It was followed by Mumbai, which received USD 218 million, and Jaipur, which secured USD 150 million. Notably, Jaipur-headquartered insurance marketplace, InsuranceDekho, raised a substantial USD 150 million in February 2023.

The report further delved into the sectors that attracted the maximum funding. Payments, alternative lending, and digital insurance companies emerged as the top contenders, whereas the cryptocurrency sector received a relatively modest USD 5.6 million in funding during the first half of 2023.

In line with global trends, 55 per cent of the funding in India's fintech sector went to payment players. The same trend was observed in the United States, where payment startups were the primary recipients of venture capital.

Among the notable funding recipients, PhonePe, a prominent payment app, successfully raised an impressive USD 750 million at a valuation of around USD 12 billion, securing its position among the world's top ten most valued payment startups.

Despite the funding challenges, seven companies managed to attract funding rounds exceeding USD 100 million, while 19 acquisitions were reported in the first half of the year.

While no new unicorns were added during this period, the report points to the challenging and competitive market conditions that Indian fintech startups have navigated through in the first half of 2023.