MUMBAI : Fintech startups catering to businesses have, for the first time in the last five years, raised more capital this year than their consumer-facing counterparts, according to fundraising data.

The business-to-business (B2B) fintech space attracted $657 million, surpassing the $617 million flowing into business-to-consumer (B2C) fintech startups so far in 2019, according to data from Venture Intelligence, a private equity and venture capital data tracker.

In the last four years, consumer-facing startups were the darlings of investors. Last year, while B2C fintech companies got $1,168 million in investments, B2B firms were at $833 million.

Graphic by Naveen Kumar Saini/Mint
Graphic by Naveen Kumar Saini/Mint

“B2B fintech companies are more predictable than B2C firms," said Anil Joshi, managing partner, Unicorn India Ventures, a tech-focused venture capital fund that has invested in neo-banking startup Open Financial Technologies. “A B2C fintech model has higher scalability, but customers tend to switch platforms very quickly and, therefore, have to be attracted through discounts and freebies, which eventually makes it hard for these businesses to break-even," Joshi said.

Customer stickiness and better unit economics were some of the factors that made B2B fintech companies more attractive. “SME customers tend to be stickier and offer opportunities for better unit economics," said Vinay Bagri, co-founder and chief executive officer, NiYO, a digital banking startup that services both retail and SME customers.

“Servicing SME customers requires a lot of understanding of the segments in which they operate and their business processes, before lending or reaching a solution on their problems. It is, thus, a diverse group with varied needs and there is a lot of scope in terms of how their businesses can be streamlined with technology," he said.

The lack of digital competence within Indian MSMEs also makes B2B fintech an attractive proposition for investors. After the introduction of the goods and services tax in 2017, small businesses faced multiple challenges with the online taxation process, leading to an increase in startups offering solutions to such issues.

“The last two years have been very tough for small businesses in the country, mainly because of the lack of digitization. B2B fintech firms are helping them become more efficient by digitizing their processes through simple and customer-friendly solutions," said Anand Lunia, partner, India Quotient, an early-stage investor that backed digital lending startup Lendingkart.

Payments solution company Razorpay, which enables digital payments for over 350,000 businesses in India, has so far raised $75 million in 2019, emerging as the highest funded B2B fintech startup for the calendar year. Other B2B fintech startups that have raised funding this year include OKCredit, OfBusiness, Aye Finance and NiYO.

“Startups that can acquire a lot of SME customers and create a large database of their transaction information are most interesting to investors, such as payments-led or transaction-led SME platforms," said Rajat Agarwal, director of VC fund Matrix Partners India, which has invested in B2B fintech startups such as Razorpay and OfBusiness.

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