Indian fintech sector sees bleak first half of 2023 as funding drops 67%

In the first six months of 2023, Indian fintechs raised $1.4 billion, a significant drop from $4.3 billion in the same period last year.

This trend has continued from the second half of 2022 when funding in the space hovered around $1.5 billion only.

Despite the funding winter, India retained its spot as the third most attractive destination for venture funding after the US and the UK, the report said.

Early stage investments saw a steep 81% decline from the first half of 2022, while seed stage funding fell 70%, Tracxn’s semi-annual funding report for the Indian fintech sector added.

However, for the first time in the last three years, late stage funding dominated the scene with almost $1.1 billion being poured in.

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Interestingly, the first three months of the current year saw fintechs raising almost $1.2 billion worth of funding, more than 80% of the funding for the entire six months period.The latest numbers reveal how funding is drying up almost on a month-on-month basis for Indian startups this year. Among the sectors that attracted the maximum funding are payments, alternative lending and digital insurance companies. Crypto as a sector got only $5.6 million during the first six months of 2023.

In keeping with global trends, 55% of the funding went to payment players. In the US, too, payment startups were attracting the maximum venture dollars, the report said.

Among payment apps, PhonePe raised $750 million at a valuation of around $12 billion, making it one of the 10 most valued payment startups in the world.

While no new unicorns were added, seven companies saw a $100-million-plus funding round. There were 19 acquisitions reported in the first half of this year.

One of the biggest acquisitions this year was that of Trillion Loans, an NBFC, by fintech player BharatPe for around $36 million. Another large one was that of Upwards by Lendingkart for $12 million.

Bengaluru continued to be the leader in terms of attracting venture money with almost $950 million being poured into fintechs based in the city, followed by Mumbai at $218 million and Jaipur with $150 million. InsuranceDekho, a Jaipur-headquartered insurance marketplace, raised $150 million in February 2023.

PeakXV, AngelList and Y Combinator were the top fintech investors.