Amidst the dwindling macroeconomic headwinds and a prolonged funding winter, the domestic fintech startup funding declined as much as 67% year-on-year (YoY) to $1.4 billion in H1 of 2023, as against $4.3 billion in the same period last year, according to the latest data by the SaaS-based market intelligence platform Tracxn.
Sequentially, the domestic startup funding declined by 6% quarter-on-quarter from $1.5 billion in H2 of 2022. The report attributes a downtrend in early-stage investments to be the reason behind the decline in startup funding in H1. The early-stage investments plunged by 81% and 68% from H1 of 2022 and H2 of 2022, respectively. The seed-stage funding declined by 70% and 38% as against H2 2022 and H1 2022, respectively. The late-stage funding declined by 62% during the period under review, as against H1 of 2022. Compared to H2 of 2022, late-stage funding, however, grew by 66%.
The fintech startup ecosystem raised funds worth $1.18 billion in Q1 2023, contributing to more than 84% of the funds raised in the first half of 2023. The funds raised in the January to March period of this year also witnessed a growth of 2x, as against funds raised in Q4 of 2022, says the report.
Payment platforms, alternative lending platforms and internet-first insurance platforms were the top-performing segments in the Indian fintech sector in H1 2023. Payment startups accounted for 55% of the total funding received in the fintech sector in the first six months of 2023. Funding in the payments segment has increased exponentially by 3X compared with H2 2022. Funding in payment startups is witnessing growth on a global scale, and was the highest-performing segment in the US FinTech space as well, the report says.
The domestic fintech space witnessed seven $100 million+ rounds in the January to June period of 2023. No new unicorns were recorded during this period, compared with four in H1 2022. There were no new IPOs in this sector in H1 2023, as against two each in H2 2022 and H1 2022. There was a slight uptick in the number of acquisitions, which rose to 19 in H1 2023 from 13 in the second half of 2022, but still lower than 26 in H1 2022.
"Despite being the third largest fintech ecosystem on a global scale, the domestic fintech startup ecosystem has been witnessing a funding drop similar to the global trends and H1 2023 has been the least funded half year since 2021. However, the increased investor interest in FinTech startups in this region can be attributed to the higher adoption rate of FinTech solutions in India, compared with the global average. Multiple initiatives by the government, like the introduction of UPI (unified payment interface), ease of banking policies, the introduction of India’s digital rupee are accelerating the growth in this segment," says the report.
