Fintech: 2022 in review | A turbulent 2023 awaits Fintech startups

Several founders and investors told ET that they expect an even tougher operating environment next year for Indian fintech startups amid worsening winter fundraising and regulatory changes over the past few months. will be

As fintech continues to be heavily regulated and the Reserve Bank of India (RBI) takes steps to regulate various aspects of the sector, investors are expected to continue to choose their approach, with several Consolidation could take place on the Moon, these people say. Additionally, with the release of new digital lending guidelines, banks and non-bank financial companies (NBFCs) have also moved away from first loan default guarantee (FLDG) partnerships, hurting smaller fintechs by forcing them to lend at higher costs. I’m here. , at least five of his entrepreneurs and executives told his ET.

“Fintechs that have learned to operate within regulatory guidelines and have achieved scale stand to benefit. In the short term, these larger fintech incumbents will build the lead. “Regulation could be the best medicine the industry has ever wanted: clarity for new players to enter the market,” said Bala Srinivasa, managing director of Arkam Ventures.

Fintech companies struggling in winter

Funding for the Indian fintech ecosystem has nearly halved from $10.3 billion in 2021 to about $5.7 billion in 2022, according to data obtained from research firm Tracxn. $2.02 billion equity financing.

“During this economic slowdown, investor expectations for unit economics have shifted from ARR (average recurring revenue) to profit after tax (PAT). Fibe, formerly EarlySalary, Chief Executive Officer: “Also, as PE funds continue to write large checks in the digital lending space, this year will be more profitable than ever. The focus is on growth.”

The private equity giants continue to record growth rates this year as valuations weaken in a bear market. Early-stage valuations have also been affected, down “almost 25% to more than 35%” from high-growth years, according to Srinivasa.

Fibe and KreditBee are among the few digital lending startups to raise growth rounds from private equity majors such as TPG, Norwest Venture Partners, Premji Invest and Motilal Oswal Alternates.

Yubi (formerly CredAvenue) raised $137 million in March this year from Insight Partners, B Capital Group, Dragoneer and others.

ET reported on October 27 that personal loan provider MoneyView is also in the final stages of completing a $150 million equity financing from Apis Partners at a unicorn valuation.

“The key to investing[in fintech]today is whether the business model is currently good and defensible. Anyone who can prove the business model can grow. The average business model cannot raise money in 2022. The strong will get stronger and the weak will disappear,” he said at the beginning of the year. said a fintech entrepreneur who was considering

Category leader Slice seeks to raise $100 million in new funding as RBI deals final blow to card-based fintech by banning credit facilities from being loaded onto prepaid payment instruments (PPI) has halted its fundraising plans, ET reported. July 18th. Raised his $50 million in June from existing investor Tiger Global. Instead, the company is focusing on digital payments, entering the Unified Payments Interface (UPI) space and seeking a PPI license.

The RBI’s memorandum has also influenced competitor Uni, which is exploring alternative business models.

How is the integration progressing?

Indian fintech firms as global macroeconomic headwinds from rising inflation and interest rates continue to depress public and private market valuations of global fintech giants such as Stripe, Klarna and Zip also found it difficult to raise capital this year.

ET reported on Nov. 25 that digital payments giant PhonePe was close to acquiring buy-now-pay-later (BNPL) startup ZestMoney, suggesting a wave of consolidations could come in 2023. I’m here.

“The regulatory environment has made it impossible for fintechs to take advantage of some practices such as FLDGs. Investors are expected to be more selective, said Kunal Pande, partner at KPMG India.

“Investors are expected to continue to take a wait-and-see approach over the next six to 12 months,” Pande added, as conditions are changing on the ground even after recent regulatory changes.

Meanwhile, big fintechs like Cred and Razorpay, which have raised a lot of money by 2022, are looking to boost their valuations. Even as online credit continues to face regulatory scrutiny, it is not surprising that several neobanks and payment companies with wide distribution are racing to enter the lending space because of the margins offered by the segment. It’s not surprising.

“I think we will see consolidation in more mature segments like alternative lending. A strong company with a strong balance sheet needs to strengthen its product portfolio and financial services. 2023,” Srinivasa added.

Adding to the challenges, the Reserve Bank of India (RBI) is strict when it comes to providing NBFC licenses to fintech companies, multiple entrepreneurs told ET.

As fintechs explore new business models, macroeconomic uncertainty is pushing big players into cash-saving mode as new funding takes longer to complete.