Indian fintech industry remains third-highest funded in H1 2023 despite 67 per cent drop

The Indian fintech industry remained the third-highest funded in the world in the first half of 2023, reveals a new report by market intelligence platform Tracxn. Notably, the country trails the US and UK, just as it did in the previous year.

In H1 2023, investments into Indian fintech start-ups dropped by a substantial 67 per cent, as they raised a total of $1.4 billion compared with the impressive $4.3 billion raised in the first half of last year. Despite this decline, the funds raised in the first six months of 2023 only dipped by 6 per cent from the $1.5 billion raised in H2 2022, the report said.

During the first quarter of 2023, fintech start-ups demonstrated impressive growth, raising funds totalling $1.18 billion, which accounted for over 84 per cent the total funds raised in the first half of the year. Notably, the funds raised in the first three months of 2023 were twice as much as the funds raised in the previous quarter (Q4 2022). However, funding decreased significantly in the second quarter of this year, making it the least funded quarter since 2021.

Titled ‘FinTech - India Semi Annual Funding Report - H1 2023’, the study said there were seven $100 million+ rounds in the first six months of 2023 while no new unicorns were recorded during this period, compared with four in H1 2022. There were no new IPOs during the first six months of the year as against two each in H2 2022 and H1 2022 while the number of acquisitions increased slightly to 19 in the first half of this year from 13 in H2 2022 but remained lower than the 26 recorded in H1 2022.

Payment, alternative lending, and internet-first insurance platforms were the top-performing segments in the fintech sector during the period, with payment start-ups taking the lead, securing a substantial 55 per cent of the total funding received. Funding in the payment segment surged by 3X compared to H2 2022, showcasing significant growth not only within India but also on a global scale as it emerged as the highest performing segment in the US fintech space during the same period.

IPV, Blume Ventures and Titan Capital were the top investors in seed stage rounds, while Elevar Equity, TPG and Peak XV Partners were the top investors in early-stage rounds. OP Finnfund Global Impact Fund I and Avataar Ventures were the top investors in late-stage rounds.

In H1 2023, Bengaluru emerged as the dominant hub for fintech start-ups in India, raising an impressive $949 million, which was 2.5 times higher than the funding raised by the next two cities on the list - Mumbai ($218 million) and Jaipur ($150 million). Notably, the companies based in Bengaluru accounted for a substantial 67 per cent of the total funds raised in the fintech segment during the first half of 2023.

According to the report, the decline in funding can be attributed to a significant downturn in early-stage investments, plummeting by 81 per cent compared to H1 2022 and 68 per cent compared to H2 2022. Additionally, seed-stage funding in H1 2023 also experienced a notable decrease of 38 per cent from the previous six months and 70 per cent from the first half of 2022. While there was a promising 66 per cent growth in late-stage funding in the first half of 2023 compared to H2 2022, it still registered a substantial 62 per cent drop from the corresponding period in the previous year.