India’s fintech market has received $29 billion in funding across 2,084 deals to date (Jan 2017-July 2022), earning 14% of global funding and #2 in deal volume, according to a new report.
India’s CAGR in the fintech sector grew by 20%, which was higher than the US, UK and China, which saw growth of 16%, 15% and 10%, respectively, according to ‘State of the Fintech Union Report 2022’ by Boston Consulting Group (BCG) and Matrix Partners India.
With 7,460 fintech companies, India is now third behind the United States (22,290 fintech companies) and China (8,870).
India’s fintech ecosystem has 23 unicorns (out of 106 in total) and has reached a scale to establish a strong position in the global financial services market and be benchmarked for speed of innovation, customer inclusion and its growth, the report notes.
“With over $800 billion in annual payment transactions, fintechs have made a strong contribution to the Indian economy and play an important role in providing full-fledged financial services to all Indians. We consider this collective segment to be mission critical to India’s $5 trillion economy,” he said.
Many large fintechs had started operations from 2008, with neobanks being the new entrants.
While the number of fintechs increased between 2014 and 2021, funding was low until 2015, after which the sector received a rapid increase in funding.
Covid further increased the payment space, resulting in a 210% increase in funding between CY 2020 and 2021.
“As funding and valuations rise, we have seen an acceleration in the pace at which fintechs have become unicorns compared to the past,” the report said.
The report states that “we have a game changing 5 years ahead of us as the financial services landscape is expected to have many strong players in the scene, such as large incumbents, niches as well as diversified non-banks, fintechs new-age and mature companies, aggregators and financial service providers”.
He did, however, mention that “over 70% of respondents believe that most Fintechs may not be profitable in the next 2-3 years. While scale is an important driver of profitability, the focus from the beginning on ‘the economy of unity’ is a necessary essential orientation”.
The volume of digital investments in the country increased from 4.5 million in 2021 to 9 million in 2022, registering a growth of 100%.
Neo-banking volume, meanwhile, rose from 2.5 million to 4 million, recording 60% growth in just one year, the report notes.