STATE OF THE INDIAN FINTECH
REPORT Q2 2023
INFOCUS CROSS-BORDER PAYMENTS
India’s Fintech Landscape: Key Players
India’s Fintech Startup Landscape: Who’s Who In Subsectors
Source: Inc42
Fintech Market Opportunity In India: $250 Bn+
2030
Source: Inc42 Calculations, Secondary sources, Note:
Fintech In India: Key Growth Drivers
Socio-Economic
Growing Formal Employment: The number of individuals with EPFO accounts on payroll has doubled from 6.1 Mn in FY19 to 12.2 Mn in FY22, indicating a significant increase in formal sector employment. This trend suggests a preference for borrowing from institutional lenders like banks and NBFCs rather than relying on local money lenders.
Increasing Per Capita Income: Over the past 10 years, the Gross National Income (GNI) per capita of Indians has seen a remarkable 60% growth, rising from $1,360 in 2011 to $2,170 in 2021. This growth rate surpasses the average absolute growth rate of 54% for BRICS countries (Brazil, Russia, India, China & South Africa) during the same period.
Expanding financial inclusion: According to the World Bank, the percentage of the Indian population (aged 15 and above) with a bank account has risen from 35% in 2011 to 78% in 2021. Furthermore, there has been a substantial increase in bank account penetration among the poorest 40% of the population, reaching 78% in 2021 compared to 27% in 2011.
Growing Smartphone Adoption: India witnessed an astounding 10.2x growth in smartphone users over the past decade. From 91 Mn users in 2012, the number has surged to 931 Mn in 2022, establishing India as the second-largest smartphone user base globally.
Technology
Infrastructure
Market Factors
Expanding Internet Penetration: By the year 2030, India is projected to have a staggering 1.3 Bn internet users. With an estimated doubling of users from 749 Mn in 2020, the internet user base is set to grow 1.7x in the next ten years.
Increasing Internet Speed: The average mobile internet speed (download) in India has more than doubled since 2019, going from 9.11 Mbps in 2018 to 18.6 Mbps as of July 2022.
With the anticipated introduction of 5G technology by March 2023, internet speeds are expected to increase by 20x, reaching an average mobile internet speed of approximately 372 Mbps in 2023.
Growing Venture Capital Inflow: The fintech sector has emerged as a major recipient of investments in the Indian startup ecosystem, with a five-year CAGR of 20% (2019-2022). It ranks second in terms of funding, contributing 19% of the total $141 Bn raised by Indian startups between 2014 and H1 2023, only behind the ecommerce sector, which accounts for 24% of the funding.
Expanding Addressable Market: The fintech market opportunity in India is projected to reach $2.1 Tn by 2030, growing at a compounded annual growth rate (CAGR) of 18%.
Proven Exits & Scalability: Fintech leads the way among upcoming Indian unicorns, comprising 32% of the total. Additionally, with 18 Indian startups already going public, including Paytm and Fino Payments Bank, investor confidence in domestic IPO exits has become a reality rather than a mere aspiration.
Source: EPFO India, World Bank, ET,Ookla, Inc42
How
Indian
Fintech Ecosystems
Stack Up Against US & China
Fintech Funding (2014 - H1 2023)
Investment CAGR (2019 to 2022) Number Of Fintech Unicorns
Ticket Size Of Fintech Deals In 2022
Source: Inc42
Note: For fintech funding data of United States & China are taken from Crunchbase. Number of fintech unicorns in China is from Fintech Labs | Number of fintech unicorns is from CB Insights
Top 10 Biggest Fintech Startup Funding Rounds In H1 2023
$27 Bn Raised Across 1.3K+ Deals By Indian Fintech Startups Since 2014
At the current rate, total fintech funding in India will be around $5 Bn in 2023
Fintech Funding Takes a Dip As Cheque Sizes Shrink
Compared to the previous year (Q2 2022), both the funding amount and deal count shrank by 57% and 56% respectively
Lendingtech Emerged As The Most Funded Fintech Sub-Sector In Q2 2023
DMI Finance attracted the largest funding round worth $400 Mn taking the total funding to $562 Mn
Indian Fintech Startups Encounter Major Slump In Growth Capital In Q2 2023
Source: Inc42
Note: Q2 2023 data is for the period between 1st April and 27th June 2023
India’s Top Five Fintech Startup Hubs In Q2 2023
Deal count was highly skewed towards Bengaluru based fintech startups, but Delhi NCR bagged the maximum funding
Source: Inc42
Bengaluru
Bengaluru
Fintech In India — Startup M&A Trends
20 Notable Fintech Startup Investors In H1 2023
InFocus: Cross-Border Payments
Global Cross Border Payments Comparison: India is the biggest recipient of inward personal remittance in the world
Total GDP (2022)
Inward Remittance (2022)
Inward Remittance (% of GDP)
3-Year-CAGR Inward Remittance (2019 to 2022)
Outward Remittance (2021)
Source: World Bank, Inc42 Analysis
$65 Bn Market Opportunity In India’s Cross Border Payments Segment
Source: Researchandmarkets, Inc42 Analysis
With over 18 Mn people living abroad, India has the largest international emigrant population in the world. In the coming years the number is expected to grow bigger increasing the addressable market for cross border payment solutions in the country.
On the business side, the import of merchandise & services in India was valued $760 Bn (in FY22) whereas the export was $677 Bn. Compared to FY12 the import and export surged 34% and 51% respectively.
India Received Double The Value Of Personal Remittance Compared To China In 2022
India made 13% (or $100 Bn out of $763 Bn) of global remittance in 2022, highest in the world
Source: World Bank, Inc42 Analysis
Inward Remittance Contributes More Than 90% Of The Total Personal Remittance In India
Products and services that cater to this segment have the highest opportunity to grow in the cross-border payments market
Source: World Bank, Inc42 Analysis
How Cross Border Payments Work?
REMITTANCE SERVICE PROVIDER
1. Enters bank& receiver’s details
3. Submits wire transfer form to initiate transaction
2. Gives deposit slip
5. Receiver funds
6. Receiver gets the money
Source: SALT
4. Transfer funds to its correspondent bank
CORRESPONDANT BANK
Cross Border Payment Ecosystem In India
PAYMENT TYPE
B2B: Business to business payments for an exchange of product or service
B2P: Business to person payments for business related operations
P2B: Person to business payments for a purchase of product or service
P2P: Person to person payments for non commercial purpose
Source: India Centre for Migration, PwC, Inc42
TRANSFER MODELS
KEY LEGISLATIONS
Bank/SWIFT: Transfer initiated directly via banking partner. Ideal when sender and receiver both have access to local bank account
Money Transfer Service Scheme (MTSS): Used when either or both parties do not have access to a local bank account.
Rupee Drawing Arrangement (RDA): Used when the sender uses a cheque/draft for the payment transfer
Foreign Exchange Management Act (FEMA): Regulation to empower the RBI and Government of India to regulate cross border payments
Prevention of Money Laundering Act: To prevent and prosecute money laundering activities
Liberalized Remittance Scheme (LRS): Under the FEMA act, allows Indian residents to send money overseas worth up to $250,000.
Cross Border Payment Startup Ecosystem In India: Key Statistics
Total number of funded startups Total funding raised (2014 to H1 2023) segment with highest number of funded startups Fintech unicorns operating in cross border payments
Source: Inc42
Note: The funding amount only includes startups which have cross border payments as their core business
B2B Neobanking Segment With The Highest Number Of Funded Cross Border Payments Startups
Source: Inc42
Landscape Of Fintech Startups Operating In Cross Border Payments Space
Source: Inc42
Fintech Startups Operating In Cross Border Payment Segment
Source: Inc42
Kalaari Capital
General Atlantic, VISA, Temasek
Faering Capital,
Apis Partners, Y Combinator, CABRA VC
Leo Capital, LetsVenture, RB Investments
Pentathlon Ventures, Paytm, MassChallenge
Better Capital, Blume Ventures, Coinbase Ventures Notable Investors
Tiger Global Management, BEENEXT, Insight Partners
Accel, Lightrock, Horizon Ventures
Tiger Global Management, Peak XV Partners, BEENEXT
SoftBank, Morgan Stanley, Alibaba
Inc42
Venture Partners, TCV, Alkeon Capital
Ventures
Capital, Blume Ventures, Coinbase Ventures
Notable Investors
Source: Inc42
International Payment Gateway
Y Combinator, Supermorpheus
B2B Neobanking
Elevation Capital
B2B Neobanking
Roots Ventures
B2B Neobanking
Hummingbird Ventures, Soma Capital, Y Combinator
International Payment Gateway
General Catalyst, Lightspeed Venture Partners
B2C Neobanking
Note: *Companies which offer cross-border payments as one of their offering and not the primary focus.
DST Global, Accel, Tiger Global Management
Investors Backing Indian Cross Border Payment Startups
Financial
Analysis Of Fintech Unicorns: Only one in four Indian
Startup Name Subsector
Source: MCA Fillings, Inc42 Analysis
Listed Indian Fintech Startups’ Stock Performance : Paytm & PolicyBazaar
Showed Positive Momentum
In 2023, Paytm is the best performing new age fintech stock. The stock has risen 63% since the beginning of the year, owing to improved profit margins and positive analyst ratings.
Source: NSE, Inc42 Analysis
Key Developments From Indian Fintech Ecosystem H1 2023
TAX ON INTERNATIONAL REMITTANCE UNDER (LRS)
TCS (tax collected at source) for outward remittances has been revised. Previously, international payments/transfers, excluding education loans, were subject to a 5% tax. The updated structure aims to introduce zero tax for payments valued under INR 7 lakhs (in a fiscal year), while payments above this threshold will be taxed at 20%. Effective from October 1, 2023, with potential changes before implementation.
UPI EXPANDS GLOBALLY
The National Payments Corporation of India (NPCI) is extending its UPI payment network to more than twenty countries through collaborations with Worldline, Liquid Group, and other organizations. The global expansion of the UPI network offers domestic fintech players an opportunity to access international customers.
PANCHAYATS EMBRACE UPI
The government has set a target to ensure UPI adoption among Panchayats by the upcoming Independence Day celebration in May 2023. It also mandates the use of digital payments for development work and revenue collection. Each state government will select a single service provider (UPI app operator) to onboard all registered Panchayats in the state. This centralized approach aims to streamline transaction-related information and achieve economies of scale.
SBM BANK'S DISRUPTION
SBM Bank India, a subsidiary of the State Bank of Mauritius, played a crucial role in enabling neobanking and international payments startups to conduct regulated banking operations. However, SBM Bank India's failure to comply with the RBI's re-KYC guidelines led to significant disruption. The guidelines, issued in 2021, mandated regulated entities to periodically update KYC data. While the responsibility of conducting re-KYC lay with issuing banks, not fintech partners, SBM Bank's non-compliance resulted in over eight lakh corporate cardholders facing card suspension. This situation had a negative impact on businesses associated with companies like Enkash, Razorpay, Happay, Kodo, Karbon, Open, Velocity, Volopay, and others.
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