FinTech startups overtake Chinese firms in raising funds

In the month of February 2021 alone, fundraising by the Indian FinTech sector saw an increase of 46% to the tune of $200 million

Indian startups in the financial technology (FinTech) sector have overtaken their Chinese counterparts in raising funds. The fundraising has gone up 60 per cent to $647.5 million from 33 deals for the quarter ended June 30, 2020, according to a latest report by the Reserve Bank of India (RBI). In contrast, startups in the same space in China have raised $284.9 million during the same period.

In the month of February 2021 alone, fundraising by the Indian FinTech sector saw an increase of 46 per cent to the tune of $200 million, as against $137 million a year ago. This was aided by pandemic-fuelled proliferation of digital payments, the RBI said in its monthly bulletin released last week.

Amid the Covid-19 pandemic, India has seen a 60 per cent year-on-year increase in FinTech investments to $1.5 billion in the first half of 2020. Indian FinTech firms raised around $3.2 billion in equity funding in 2019-20 but the fundraising activity slowed after the spread of Covid-19, according to India Trendbook Report 2021.

The size of the Indian FinTech market in 2019 was estimated at Rs 1.9 lakh crore. The growth of the FinTech sector is estimated at 22.7 CAGR during 2020-25, the report said.

With the Indian government taking a number of measures and consumer sectors reviving from the Covid-19 impact, Indian FinTech is poised for strong sustainable growth. While some subsectors such as MSME digital lending are facing temporary downturn, other sectors such as digital payments and Insurtech have actually taken a boost driven by the Indian customer increasingly going digital amidst the pandemic.

“Taking advantage of the push towards contactless deliveries, many FinTech players have customised offerings of their financial products and services for both consumers and merchants, thereby targeting local kirana (grocery) shops, burgeoning e-commerce platforms and online retail channels of brick-and-mortar stores,” the RBI said.

Recent collaborations between card issuing banks and FinTech companies, combined with crackdown on unauthorised overseas-based mobile apps, is expected to provide headroom to home-grown FinTech businesses to flourish, the central bank said.

According to Accenture, existing FinTech companies have gained one-third of new revenue at the cost of traditional banks. India along with China accounted for the highest adoption rate of 87 per cent (global adoption rate is 64 per cent) out of all emerging markets in the world.

India has around 2,174 FinTech startups as on June 2020. Availability of a technically skilled workforce and the presence of most parts of the financial services and technology ecosystem make Bengaluru and Mumbai the top two headquartered cities for FinTech companies.

Total investments in India’s FinTech sector crossed the $10 billion mark over the last 4.5 years from 2016 to H1, 2020.

UPI payments have skyrocketed with online banking becoming the new convention in the country.

Around 1,000+ fintech startups in India spread across diverse areas such as digital lending, digital payments and wealth management are offering impressive emerging tech-based solutions. Investments industry category is also getting traction from users as retail investors are opting the new discount brokers for investments in IPOs, mutual funds and ETFs, etc.

Major players such as PayTM, PhonePe, Groww and Zerodha have witnessed exponential growth in user activity as people transitioned to digital solutions for their banking, payment and investing needs. Out of total 21 unicorns in India, around one-third are fintech companies, PayTM being the highest valued unicorn, at $16 billion.

Cyber frauds

As opportunities for more technological innovation in the payment system increase, so do the challenges posed by cyber frauds. According to a study by the Bank for International Settlements (BIS), the pandemic has triggered a spike in cyberattacks on financial services firms globally due to a shift to remote work and cloud software.

The Reserve Bank has issued a Master Direction on Digital Payment Security Controls that specifies requirements for robust governance and monitoring of certain minimum standards on common security controls for channels like internet and mobile banking, card payments. Moreover, the Reserve Bank will issue a code of conduct prescribing guidelines on payments outsourcing.

The ‘RBI Says’ campaign has recently gone the ‘rap’ way to ramp up outreach and enhance customer awareness regarding safety in the digital payment space.