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What to look out for in India’s VC funding; Industry experts weigh in

By Puja Sharma

November 23, 2022

  • 100X.VC
  • BLinC Invest
  • Equity Funding
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RK-Rangan-Blinc-Invest
RK Rangan, Director, and Chairman, of BLinC Invest

Speaking of how is the industry performing, RK Rangan, Director, and Chairman, of BLinC Invest, said,  “The RBI and the government have announced several initiatives in the FinTech industry over the past few years, the most recent of them being the launch of UPI Lite, linking credit cards to UPI, and setting up of RBIH (Reserve Bank Innovation Hub). These reforms and initiatives will foster innovation and enhance efficiency with the sector continuing to be an attractive segment to invest in.”

FinTech as you know is an under-penetrated sector in India. We as investors look at the problem depending on the various FinTech segments, i.e., lending, insurance payment, etc., and look for opportunities to solve this to help improve market access and boost financial inclusion.

Ruchir Lahoty, Megadelta capital
Ruchir Lahoty, Managing director, Megadelta Capital.

“With the intervention of regulatory authorities and continuous reforms in the sector, there would be more and more opportunities in the sector such as micro-insurance, alternative investments focused on an assfurther, supply chain finance targeted towards the MSME segment, etc,” Rangan further noted.

“Investing in FinTech in India is attractive essentially because of a large market opportunity and a large segment of financial needs that are unmet by established large institutions in the ecosystem. The large mobile-first youth in India across income segments are quickly adopting new transaction modes and are quickly accepting emerging tech-driven disruptions. This has led to significant capital flows to many fintech companies across all subcategories.” said Ruchir Lahoty, Managing director, Megadelta Capital.

Post the pandemic, there has been of a marked slowdown in funding in the fintech industry in India, essentially because investors are now seeking to validate business models, checking for sustainable growth and margin defensibility. Also, some of the other key diligence areas that require a deep dive include a check on regulations and regulatory impact on the business, tech intensity, and customer ownership/ loyalty. Despite this temporary wait-and-watch approach, I believe that the fintech industry will re-emerge as a key investment theme for Indian investors.

According to Shashank Ranadev founder VC at 100X.VC, “The Indian FinTech ecosystem has emerged d as a formidable global force and is one of the world’s largest FinTech markets. One of the best digital payments ecosystems in terms of value and volume, phenomenal growth in consumer and SME digital credit access (enabled by UPI), and massive retail investor participation in the stock market are proof that Indian FinTech firms are on the right track. As the Indian entrepreneurial landscape evolves, more and more FinTech use case-led businesses will be developed, with more investors supporting these businesses.”

Shashank-Randev-Founder-VC-100X.V
Shashank Ranadev founder of VC at 100X.VC

The five-year CAGR (2016 to 2021) of investments in Indian fintech startups was 57%, making fintech the second most funded sector in the Indian startup ecosystem. Fintech contributes 18% ($24 Bn) of the $131 Bn raised by Indian startups between 2014 and H1 2022, trailing only eCommerce, which contributes 23%. With 22 unicorns in the space, India’s Fintech startup ecosystem is growing faster than China’s.

“Out of the 102 upcoming Indian unicorns, FinTech is poised to have the single highest share making 32% of the total, and with the overall FinTech market size expected to reach $2.1t by 2030, it is undoubtedly a hot spot for venture capital investments. However, it should be noted that publicly traded fintech startup stocks in India have experienced massive price declines since the beginning of 2022, which may be a deterrent.” Ranadev added. FinTech is a top priority for investors in the year 2022-23, according to the 100X.VC India Sentiment Outlook Survey Report 2022. There is a lot of interest in the sector as FinTech companies are capital efficient and can grow to be very large with very little (or no) growth capital. It is an appealing investment opportunity because investors seek strong unit economics and a clear path to profitability, both of which FinTech start-ups provide

FinTech in India – Insights & Key changes: My views on FinTech are based on the consumer mindset changes and that eventually drives all other factors including regulatory changes, market dynamics, and products & services as well.

Under-Penetrated Markets: Securities are crowded, mutual funds are crowded, and policy agents are crowded but Insurance, Pension & many other parallel markets are not. The future of Fintech in 10 years will be more to explore each & every use case of an under-penetrated market. Large players who have achieved good market share in penetrated markets will move towards under-penetrated markets to achieve scale.

Consumer Mindset: Data, Transparency, no hidden charges, sales commission, and DIY concepts are a few sensitive topics that have changed a lot in the past few years. Going forward the Consumer will be more aware of his/her data, and transparency & flexibility to personalise things as per their needs will drive user behaviours. Social Image/status will play an important role for fintech players to drive trust at scale.

Regulatory Changes: Regulations are changing and will keep evolving in regulated markets, to keep the best interest of consumers and unregulated markets will also see a lot of attention. Fintech players will work with regulators to find a solution that works for both but If I see a future of fintech, it’s working together with regulators & in regulated space to maximise trust in consumer mindset.

Pension/Retirement Market (The underdog): By 2050, Pension will be one of the biggest markets in India and it won’t just stop there, all the services catering to elders will emerge exponentially.

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