Fintech startups in India encountered a significant funding decline in 2023, aggregating $2 billion, marking a substantial 63% drop from the previous year’s $5.4 billion, as indicated by Tracxn’s data reported by the media. This downward trend aligns with broader market shifts witnessing reduced funding across multiple sectors. Fintechs notably experienced a notable slowdown compared to the zenith of the funding surge in 2021 when they amassed a remarkable $8.4 billion.
Despite this funding contraction, the Indian fintech sector maintains its standing as the third-highest funded globally in 2023. Its notable growth and traction have also positioned it as the fourth highest-funded startup ecosystem in the global fintech domain, based on cumulative funding received to date.
The year 2023 registered a considerable decrease in the number of funding rounds for fintech firms, with only 144 rounds compared to the substantial 504 seen in 2022. Alternative lending, payments, and banking tech emerged as the top-performing segments within fintech. Among these, alternative lending firms secured the most substantial funding, amounting to $835 million in 2023.
The decline in funding rounds predominantly affected early-stage and seed-stage financing, with a substantial drop of 73% to $489 million and 69% to $145 million, respectively. Late-stage rounds also witnessed a significant decline, dropping by 56% to $1.4 billion.
In 2023, payment startups garnered $753 million in funding, while those concentrating on banking tech services secured $331 million from investors. Both segments experienced notable decreases in funding compared to the preceding year.
Among fintechs, only five funding rounds exceeded $100 million in 2023, featuring PhonePe, Perfios, InsuranceDekho, KreditBee, and Mintifi. PhonePe led the funding rounds with $623 million, followed by Perfios at $229 million and InsuranceDekho at $150 million.
During the year, InCred emerged as the sole unicorn in the Indian fintech sphere, a notable decrease from five unicorns in 2022. Additionally, two fintechs—Zaggle and Veefin—launched their initial public offerings (IPOs), compared to five such IPOs in the preceding year.
In the realm of fintech funding across cities, Bengaluru spearheaded, followed by Mumbai and Jaipur. Peak XV Partners (formerly Sequoia Capital India), Y Combinator, and LetsVenture emerged as top investors supporting fintech initiatives in India.
This shift in funding trends within India’s fintech domain reflects evolving investor sentiments and a recalibration of investment strategies. The noticeable decline in early-stage and seed-stage funding points to a cautious approach adopted by investors, potentially influenced by market uncertainties or a revaluation of risk tolerance. Despite the overall funding contraction, segments like alternative lending, payments, and banking tech exhibited resilience, sustaining investor interest amid the challenging investment landscape.
The diminished number of unicorns and IPO launches in the Indian fintech sector during 2023 signals a shift towards quality-driven investment and a maturing ecosystem. This trend aligns with an environment where investors prioritize sustainable growth and viability over rapid expansion. Despite the funding landscape experiencing a downturn, prominent investors like Peak XV Partners (formerly Sequoia Capital India), Y Combinator, and LetsVenture continue to showcase confidence in India’s fintech potential, emphasizing long-term prospects amid short-term fluctuations.
Bengaluru’s prominence as the frontrunner in fintech funding underscores its robust ecosystem and conducive environment for fostering innovative fintech ventures. Mumbai and Jaipur also emerged as significant contributors to India’s fintech landscape, reflecting the geographic diversification of fintech innovation and investment opportunities across the country. This trend highlights India’s growing stature as a breeding ground for fintech innovation and the country’s efforts to establish itself as a global fintech hub.