VC-backed deals in Indian fintech space decline to five-quarter low

Deal volume in fintech space falls 40% to nine deals in July-September from the same period a year ago


Graphic: Ajay Negi/Mint
Graphic: Ajay Negi/Mint

Despite the buzz around start-ups working on financial technologies (fintech), investors globally and in India are approaching the sector with caution, a report said.

According to ‘Pulse of Fintech’, a report from CB Insights and KPMG, venture capital (VC)-backed fintech funding fell 17% worldwide to $2.4 billion in the July-September quarter from a year ago, while deal activity fell 12% to 178 deals.

In India, the number of VC-backed fintech deals fell to a five-quarter low, the report said. Deal volume fell 40% to nine deals in Q3 from the same period a year ago.

Funding to VC-backed Indian fintech start-ups fell 19% to $127 million on a quarterly basis.

So far this year, Indian fintech start-ups have raised $357 million across 39 transactions, the report shows.

Investments in Indian fintech start-ups declined as investors focused on higher-quality deals, the report said.

However, despite a decrease in funding during Q3, the outlook for fintech investment in India remains strong, the report said.

“Payments technologies continue to be a key focus for investment. The government has been a key driver in the development of a common payments platform in India. This platform has already gone live at some banks, although the impact of the platform has yet to be seen,” it said.

Apart from payments, lending, mobile wallets and robo advisory technologies are also among the investment areas of interest in India.

“Unlike in other areas of the world, investment in lending solutions is still going strong in India. A number of fintechs are now partnering with banks, either acting as lead generation for them or offering ‘white label’ platforms so that banks can provide their own services,” said Neha Punater, head of fintech, KPMG India.

The top three fintech deals in Q3 included a $60-million fund raising by Paytm parent One97 Communications Ltd, a $40-million fund-raising by MobiKwik and Sirion Labs’ $12.3-million fund raising.

In Q3, fintech investments were stronger in Asia than in North America.

North America saw both fintech funding and the number of deals fall on a quarter-on-quarter basis, as VC-backed start-ups raised just $900 million across 96 deals.

In Asia, funding increased 50% on a quarter-on-quarter basis to reach $1.2 billion, across 35 deals.

“Over the past year, Asia has dominated the fintech investment scene, with nearly as much investment in the first three quarters of 2016 as in all of 2015. China-based fintech companies have done especially well, with unicorn companies such as Ant Financial, JD Finance and Lufax continuing to grow and attract investment both domestically and globally,” the report said.

Additionally, Asia’s diverse fintech hubs are also helping to make the region a fintech leader.

Hong Kong, Singapore, Australia and India are finding their own ways to set their fintech offerings apart, it added.

Sequoia Capital India, Accel Partners India and Kalaari Capital featured among the top 10 active fintech investors in Asia.

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