Fintech, the darling of private market investors for years, is going through a period of slowdown. Funding in fintech start-ups declined 47 per cent to $5.65 billion in 2022, according to data from Tracxn. The drop in funding was caused by a 56 per cent decline in late-stage deals from $8.3 billion in 2021 to $3.7 billion in 2022.
The total number of fintech funding rounds also dropped by 29 per cent to 390. Additionally, the large $100 million+ rounds fell by 50 per cent to 13 during the year. “There has been a constant decrease in funding of more than 30 per cent in each 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 paucity of free-flowing venture capital, a lot of start-ups were faced with a funding crunch, forcing them to either lay off employees or sell out to bigger players. As a result, consolidation picked up in the fintech sector. “The number of acquisitions increased by 33 per cent from 30 in 2021 to 40 in 2022. This increase is a result of consolidations that are happening across industries due to declining valuations of start-ups and more opportunities for major players to expand their business,” according to Tracxn.
Razorpay’s $200 million acquisition of Ezetap, through which it forayed into offline payments, was the biggest M&A in fintech.
Despite a somewhat humbling 2022, India’s fintech start-ups have managed to raise a whopping $16.5 billion in venture capital in the last two years. It is a critical sector for the country’s economic growth, and its long-term prospects remain positive.
“The shift towards digitization since the pandemic has accelerated the adoption of fintech solutions significantly. Digital payments and lending, which were previously concentrated only in the major cities, are now becoming mainstream even in Tier 2 and 3 cities in the country,” Tracxn stated.
It also added, “The convenience of using these services, compared with our traditional financial services infrastructure has also attracted a lot of users. A large unbanked population and rising mobile phone usage are some of the factors that will aid the sector’s growth in the long run.”
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