Investments in fintech doubled. Lending startups saw three times more inflow of funds. But it seems 2017 may not be just the year of payments, despite demonetisation.
While you might be tempted to dispute it, most would agree that the past year has seen a lot of drumming around the financial services space. However, a great chunk of it was for initiatives whose groundwork had been laid years ago and which now seem to be reaping the benefits.
For example, the year kicked off with the grand launch of the Unified Payments Interface (UPI) in February, which rides on the Immediate Payment Service (IMPS) infrastructure, whose framework was laid a couple of years ago. Also worthy of note is the India Stack, which actively came together to unleash its potential with the launch of UPI.
Launched by the National Payment Corporation of India (NPCI), the UPI allows you to make payments using your mobile phone as the primary device for transactions, through the creation of a ‘virtual payment address’, an alias for your bank account.
And at the end of the year was the recent announcement of demonetisation, which gave payment service providers the biggest used-case in the history of the country for the subscription to digital payments.
It seems that there hasn’t been a better time for financial services startups . Indian payment majors like Paytm have already claimed that they are en route to achieving goals originally set for 2020 by next year.
But with the rising buzz, was this zeal reflected in the investment flow into the Indian fintech segment?
The investment scenario
According to YourStory Research, the Indian financial startup ecosystem saw more than $687 million poured into the space across 88 deals. This may seem low when compared to 2015, for which investment stood at $954 million across 47 deals, however, one needs to understand that a large chunk of that amount, close to $575 million, was Alibaba-backed Ant financial Services Group’s investment in Paytm’s parent company, One 97 Communications.
So, if the massive Paytm deal is left out of consideration, investment in the Indian fintech scene has risen by over $300 million, an 81 percent rise across sectors.
Further dissecting the investments, one sees that there were 42 pre-Series A deals closing an approximate $30.7 million; 17 Series A deals amounting to $66 million; four Series B deals amounting to $74.3 million; and two Series C and Series D deals, raking in close to $65 million and $49 million respectively.
Venture contributed to $227 million, while other deals, whose rounds weren’t disclosed, contributed to $175 million of the total funding.
Where is the money going?
On diving deeper into the sub-sectors of Indian fintech, one sees that the results aren’t extremely surprising.
Payments and Lending continue to be the forerunners in receiving attention from Indian investors, with multiple other hybrid business models emerging in the financial space.
Here’s a look at how the sub-sectors have fared in terms of funding:
No. of companies funded in 2016: 13
Funding in 2016: above $267 million
Funding received in 2015: $725 million (including One 97 Communication’s $575 million funding)
Average round size in this sector:
Pre-Series A: slightly above $1 million
Series A: $3.4 million
Series C: $32.5 million
This year, Indian payment majors like Paytm and MobiKwik both raised funding from Taiwanese semiconductor company MediaTek.
Investment in both these companies formed a major chunk of the investment in this sub-sector, raking in almost $150 million together.
The other known startups that raised funding this year were payment solutions and platforms JusPay and TransServe, online payment gateways RazorPay and CCAvenue, as well as cross-border payments service Remitware Payments.
But 2016 showed that payments isn’t the only equivalent to fintech investments.
The Lending category has seen various new business models come into play, including peer-to-peer lending, micro-loans, crowd-funding (sourcing), and even capital provision for SMEs. There has also been a great deal of activity around the theme of financial inclusion.
No. of companies funded in 2016: 32
Funding in 2016: above $343 million
Funding received in 2015: approximately $124 million
Average round size in this sector:
Pre-Series A: approximately $1.45 million
Series A: approximately $5.1 million
Series B: approximately $18.5 million
The rise of digital payments has led to an outburst of lending startups in the ecosystem. Clearly, lending seems to be king, with the investments in this space almost tripling when compared to last year. And with the recent demonetisation, there seems to be no stopping the advance of the segment.
Even banks see a rise in credit in the coming few months, in spite of being hit in the immediate aftermath of demonetisation.
In fact, 2016 saw the Reserve Bank of India (RBI) also introduce a discussion paper, with inputs from industry players, charting the future course of action for the P2P lending market.
There has also been a host of startups getting funded in the SME lending space as businesses start to figure out alternate routes of funding, with the current restructuring in investments. Business models around invoice discounting for working capital have also seen some interest from investors.
Some of the key ones that seem to have been funded this year include InCred Finance, IntelleGrow and KredX (invoice discounting).
In an early interview with YourStory, fintech veteran and Managing Partner at Prime Venture Partners Sanjay Swamy said,
“The next wave of fintech companies will be coming in the credit lending space, with multiple credit-based products in the market (including credit scoring).”
The lending majors that sought funding this year were Capital Float ($25 million), IFMR Capital ($75 million in two rounds), Neo Growth ($35 million), LendingKart ($32 million) and InCred Finance ($74 million).
No. of companies funded in 2016: 3
Funding in 2016: $2.3 million
Average round size in this sector:
Pre-Series A: $360,000
Series A: $2 million
The credit scoring segment is a bi-product of lending and digital payments. Further, with the rise in activity around digital payments, it is likely that we will see more such business models coming up next year.
This year saw three startups – CreditSeva, CreditVidya and DataSigns – garnering investments from Kalaari Capital, Pix Vine Capital and other angel investors.
Virtual currencies
No. of companies funded in 2016: 1
Funding in 2016: $1.5 million
Bitcoin is still a revolutionary concept in India, especially in the wake of demonetisation, with a good chunk of the population in the country just starting to understand the potential of digital payments.
This year, Bitcoin startup Unocoin raised a pre-Series A round of $1.5 million from Blume Ventures, Mumbai Angels, ah! Ventures, Digital Currency Group, Boost VC, Bank to the Future and Funders Club.
Tax filing
No. of companies funded in 2016: 3
Funding in 2016: $16.5 million Average round size in this sector:
Pre-Series A: approximately $1.45 million
Series A: approximately $12 million
Tax filing is another category that seems to be picking up in terms of the entry of new startups. Although focused on consumer…