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After experiencing a bull run in 2021, funding momentum into fintech startups appears to be cooling down this year. 

According to a report by Tracxn, funding in the sector peaked in the fourth quarter of 2021 and has been on a decline ever since, with late-stage funding taking the maximum hit—down almost 45% in August 2022 from the same month last year. 

The month of August saw the biggest drop in funding this year, with a month-on-month drop of 51.3% from July 2022 and a decline of 38% from August 2021. 

“Paytm’s underwhelming IPO results, forthcoming regulatory reforms, and the predicted slump in the economy are some of the factors responsible for the slowdown,” the report said. 

However, India has been performing better than its peers during this period. India’s market share in terms of global funding for the fintech sector has increased to 6.1% in the first eight months as compared to 5.1% in the same period last year. 

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Most funded sectors

Alternative lending, payments, and investment tech received the highest funding in 2022. This came on the back of startups like Oxyzo and EarlySalary which raised the highest funding of $200 million and $110 million, respectively. Pine Labs raised a total of $200 million in two rounds this year. 

Internet first auto insurers, loan life cycle management, internet first business loans marketplace, lending-as-a-service platforms, and alternative credit score providers saw traction among investors and were some of the top-funded business models. 

Interestingly, while the median funding size of the seed round saw an uptick in 2022—from $1.3 million last year to $2 million, late-stage startups saw a decline—from $103.9 million to $64.8 million. 

Looking at the last 24 months of funding data, Paytm tops the chart with the highest funding round of $1.1 billion from Aditya Birla Capital, CPP Investments, and BlackRock, followed by PhonePe, Pine labs, Polygon, Razorpay, and OfBuisness. 

First-time investors drop

Last year, there was an addition of almost 656 first-time investors in the fintech sector—the highest since 2017. This came down by almost half in 2022 to 375. 

Among the top institutional investors leading seed stage rounds in fintech over the past two years, Y Combinator led 43 rounds, followed by AngelList (34) and LetsVenture (33). 

AngleList was also among the top investors in the early-stage rounds, investing in 15 rounds, followed by Sequoia and Beenext. The late-stage rounds were dominated by Tiger Global Management (27 rounds) and Matrix Partners India (9). 

The most active investors (VC) in the Indian fintech space are BeeNext and Blume Ventures (Seed); Tiger Global Management and Sequoia Capital (Early); and SoftBank Vision and DST Global (Late). 

In private equity (PE), Trifecta Capital, WestBridge, and FMO top the charts while T-Hub remains the most active incubator and accelerator. 

As many as four new unicorns (Open, OneCard, Oxyzo, Yubi) were added—two from alternative lending, and one each from payments and banking tech. While August 2022 saw no addition of new unicorns, overall, there are 22 fintech unicorns in the country. 

Niyo, KhataBook, Clear, smallcase, Turtlemint, Rupeek, M2P Fintech, FamPay, InCred and Lendingkart are among the top 10 fintech soonicorns in the Tracxn list.