India’s Billion-Dollar Fintech Sector Sees Challenging 2023

Investment metrics change with investors becoming more diligent and more money going into risk and compliance startups, Bain says.

Companies in India’s $50 billion fintech industry will face tougher regulatory scrutiny and tighter liquidity leading to higher capital costs, said Rakesh Pozhath, partner at consulting firm Bain & Company in a «Bloomberg» report  published Wednesday (paywall).

That could result in a higher cost of capital for smaller fintech firms in 2023, he added.

More Diligent

India’s fintech sector has attracted major investments from the likes of Warren Buffett’s Berkshire Hathaway Inc and Masayoshi Son’s SoftBank Group Corp.

But according to Pozhath, investors have been getting more diligent in the past few years as global financial conditions tighten, which has intensified the competition for capital.

Indian fintechs are largely in the payments and lending space, and they have attracted approximately $25 billion in funding between 2000 and 2020, with about $10 billion in 2021 alone, according to a recent report Pozhath co-authored. The first half of 2022, however, only recorded $4.2 billion in fundraising, a significant year-on-year decline.

Risk and Compliance

In 2022, given numerous cases of fraud and malpractice, the Indian regulator intensified controls to regulate the fintech lending space by issuing a series of guidelines that forced platforms to rethink their business models.

«You will see a lot of investment going into risk and compliance departments,» Pozhath said.

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