State Of The Indian Fintech Report Q2 2023

STATE OF THE INDIAN FINTECH

REPORT Q2 2023

INFOCUS CROSS-BORDER PAYMENTS

Table Of Contents

Top Indian Fintech Startup Hubs In 2023

Notable Fintech Startup Investors In 2023

InFocus: Cross-Border Payments 21

Global Comparison: How India Stacks Up Against The USA & China

Value Chain Of Cross-Border Payments In India

Cross Border Payment Ecosystem In India

Cross Border Payment Startup Ecosystem In India: Key Statistics

Segment Wise Split of Funded Startups

Landscape Of Fintech Startups Operating In Cross Border Payments

List Of Notable Fintech Startups Operating In Cross Border Payment Segment

Notable Investors Backing Indian Cross Border Payment Startups

India’s Digital Economy In A Nutshell

Fintech Market In India: A Snapshot

MARKET OPPORTUNITY

VENTURE CAPITAL

UNICORNS & SOONICORNS

$2.1 Tn

Estimated Size Of The Fintech Market By 2030

$27 Bn

Total Funding (2014 to H1 2023)

22

Number Of Fintech Unicorns

18% Estimated Market Size CAGR (2022-2030)

Lendingtech

The Most Lucrative Market (2030)

20% Funding CAGR (2019 to 2022)

34 Number Of Fintech Soonicorns

$65 Bn Market Opportunity For Cross Border Payments (2030)

Source: Inc42, Researchandmarkets

4.2K+ Active Fintech Startups 655+ Funded Fintech Startups

Note: Market opportunity for cross border payments include transactions for both personal and business use case

$68 Bn Combined Valuation Of Fintech Unicorns

$13 Bn+ Combined Valuation Of Fintech Soonicorns

India’s Fintech Landscape: Key Players

India’s Fintech Startup Landscape: Who’s Who In Subsectors

Fintech Market Opportunity In India: $250 Bn+ Addressable Market For Digital Payments Solution Providers

By 2030

Source: Inc42 Calculations, Secondary sources,

Note: The total addressable market (TAM) showed above is calculated using a bottom-up approach for the overall fintech market size and top-down for the fintech segments mentioned.

Fintech In India: Key Growth Drivers

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.

Socio-Economic

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.

Technology

Infrastructure

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.

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.

Market Factors

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

Total Fintech Funding (2014 - H1 2023)

Startup Investment CAGR (2019 to 2022)

Number Of Fintech Unicorns

Median 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

$7.5 Mn

| Number of fintech unicorns is from CB Insights

Fintech In India — Funding Trends

Top 10 Biggest Fintech Startup Funding Rounds In H1 2023

Notable Investors

Source: Inc42

Note: H1 2023 data is for the period between 1st January and 27th June 2023 | Only publicly disclosed deals available in Inc42 database are included

$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

Funding Amount ($ Bn) Deal Count

Source: Inc42

Note: H1 2023 data is for the period between 1st January and 27th June 2023 | Only publicly disclosed deals available in Inc42 database are included

Fintech Mega Deals Remain Stagnant

Investors adapt to the funding slowdown by signing smaller cheque sizes

Source: Inc42

Note: H1 2023 data is for the period between 1st January and 27th June 2023 | Only publicly disclosed deals available in Inc42 database are included

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

Funding Amount ($ Bn) Deal Count

Source: Inc42

Note: H1 2023 data is for the period between 1st January and 27th June 2023 | Only publicly disclosed deals available in Inc42 database are included

Indian Fintech Startup Funding: Median Ticket Size Plummets 41% in Q2 2023

Source: Inc42

Note: Q2 2023 data is for the period between 1st April and 27th June 2023

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

Source: Inc42

Note: Based on funding deals recorded between 1st April to 27th June

Indian Fintech Startups Encounter Major Slump In Growth Capital In Q2 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

Fintech In India — Startup M&A Trends

2021 and 2022 accounted for 44% of the total M&As between 2015 to June 2023

Notable Fintech Startup Investors In H1 2023

Notable Funded Startups

Aerem, Sentra World

InsuranceDekho

Notable Funded Startups

Cloudbankin, Fello

BankSathi, LoanKuber

Indifi, Mintoak

Niro, SarvaGram

Mintifi, SarvaGram

PhonePe

Digit Insurance, Mintoak

BankSathi, BharatNXT, LoanKuber

Niro, Stashfin InsuranceDekho

Source: Inc42

Note: This list is not ranking of any kind. Investors have been placed in alphabetical order. Deal count refers to number of fintech deals they participated in H1 2023.

NeoGrowth, Varthana

GrayQuest, Mintoak

Nimbbl

Castler, Solar Ladder

SayF, Solar Ladder

InsuranceDekho, PhonePe, SarvaGram

BASIC Home Loan, Castler

Fello, Gullak

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

Note: Inward & Outward remittance data is of personal payments only

$65 Bn Market Opportunity In India’s Cross Border Payments Segment

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.

Source: Researchandmarkets, Inc42 Analysis

Note: Market opportunity for cross border payments include transactions for both personal and business use case

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

Note: Inward & Outward remittance data is of personal payments only

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

How Cross Border Payments Work?

SENDER

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

RECEIVER

4. Transfer funds to its correspondent bank

CORRESPONDANT BANK

Source: SALT

LOCAL BANK

Cross Border Payment Ecosystem In India

PAYMENT TYPE

TRANSFER MODELS

KEY LEGISLATIONS

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

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.

Source: India Centre for Migration, PwC, Inc42

Cross Border Payment Startup Ecosystem In India: Key Statistics

20+ $123 MN+ 5 B2B

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

B2B Neobanking

40.9%

International Payment Gateway

Funded Cross Border Payments Startups

31.8%

Money Transfer/ Exchange

13.6%

B2C Neobanking

13.6%

Source: Inc42

Note: This analysis is based on a sample set of 20+ Indian fintech startups offering cross border payments products/services

Landscape Of Fintech Startups Operating In

Cross Border Payments

Space

Fintech Startups Operating In Cross Border Payment Segment

Notable Investors

Kalaari Capital

General Atlantic, VISA, Temasek

Faering Capital,

Apis Partners, Y Combinator, CABRA VC

Leo Capital, LetsVenture, RB Investments

B2B

Pentathlon Ventures, Paytm, MassChallenge

Better Capital, Blume Ventures, Coinbase Ventures

Source: Inc42

Note: *Companies which offer cross-border payments as one of their offering and not the primary focus.

Notable

Tiger

Tiger Global Management, Peak XV Partners, BEENEXT

SoftBank, Morgan Stanley, Alibaba

Lightspeed Venture Partners, TCV, Alkeon Capital

Secocha

Better Capital, Blume Ventures, Coinbase

Notable Investors

Y Combinator, Supermorpheus

Elevation Capital

Roots Ventures

Hummingbird Ventures, Soma Capital, Y Combinator

General Catalyst, Lightspeed Venture Partners

DST Global, Accel, Tiger Global Management

Source: Inc42

Note: *Companies which offer cross-border payments as one of their offering and not the primary focus.

Investors Backing Indian Cross Border Payment Startups

Financial Analysis Of Fintech Unicorns: Only one in four Indian fintech unicorns are operationally profitable

Source: MCA Fillings, Inc42 Analysis

Note: Only standalone financial statements are used | Adjusted Revenue Growth Rate: It is the difference between year-on-year

revenue

Profitable/ Operationally Profitable

Profitable Profitable/ Operationally Profitable

expenditure growth rate between FY21 and FY22. Simply put, it shows how quickly a company's revenue has grown in comparison to its expenditure.

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.

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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