India has 21 FinTech unicorns (as of June 2022) and the future of Fintech is evolving in key services and technology segments. Reports suggest that over the next few years, the FinTech sector will mint the maximum number of unicorns in India. There are many positives to emerging as world FinTech capital alongside a global economic powerhouse.
Here are some data points as of July 2022 – 191 deals and $3.4 billion of funding is raised. Compared to 2021, there is an uptick of 28% in the number of deals and the cumulative funding amount reports a marginal increment of 2.7%. Out of the total amount raised, lending tech leads the pack with 14.6% followed by 9.95% for Payments tech, 6.81% for Insurtech, 21.9% for Wealth tech, 7.8% for Neobanks, 8.3% for Emerging tech, 3.1% to Financial inclusion, and 0.52% in Marketplaces. If we compare this to 2021, then the total fund raised was $3.43 billion for 191 deals and almost 50% of them (96 deals) were in the early stage segment.
Understandably, the global macroeconomic conditions are the reason for this slowdown. The two key take away that emerge from this trend are:
• It is easy for FinTech to build the supply side with respective financial institutions but difficult to build a sustainable demand side of the business (repeat customer base).
• VCs find it difficult to fund and invest in a business if there are too many clones. Differentiator and an economic moat is a must.
However, the outlook for India is bright. The Indian FinTech market is expected to log 10 times growth to achieve $1 trillion in assets under management (AUM) and $200 billion in revenue by 2030. A report from E&Y with Chiratae Ventures mentions that much of the growth will be driven by the digital lending market, which is expected to grow to $515 billion in book size by 2030. Among others, the buy now pays later (BNPL) model has become mainstream and is on an accelerated growth trajectory, emerging strong not only in B2C but also in B2B payments space too. Further growth is expected from crypto and NFT, as they attract investor interest and FinTechs continue to solve issues of traditionally underserved customers. Given the positive factors like increasing tech and digital adoption, favorable demographics, and higher and increased disposable incomes with more aware consumers, the growth trajectory looks promising and hopefully, more FinTech unicorns will be added from India. Agri and proptech are being considered big bets with Payments; Digital lending, Wealth-tech, Insure-tech, and Neo banking are expected to continue their contribution to FinTech growth.
The FinTech growth of India, especially for digital lending, is an all-around inclusion and is evident from RBI’s debut guidelines issued (on 10thAug 2022) protecting borrowers. Put together by RBI’s Working Group on Digital Lending, the guidelines focus heavily on protecting and informing borrowers, to ensure their data isn’t used for anything but the specific function it was meant for. The guidelines largely address concerns consumers have raised with regard to digital lending platforms. The industry experts claim that it has hit the right spot in defining the best-in-class industry practices.
India also has the opportunity to address the global digital skill gap and establish itself as the destination of digital and tech talent with its largest population of youth (average age of 29 years). It is recognized as a fast-growing and strong FinTech hub and will increasingly become a talent destination too.
Data courtesy: FinTech reports from Connexdoor, E&Y, and Chiratae ventures