Investments in fintech drop 30 per cent in 2018
According to industry experts, one reason for the decline in the investment value last year was the high base of 2017.
Chennai: After growing steadily for the past many years, fintech investments declined by 30 per cent last year. Investments across private equity, venture capital and merger & acquisition deals in the financial technology sector fell from a record $2.4 billion in 2017 to $1.7 billion in 2018, shows KPMG data.
The industry’s growth was spectacular in 2017. In the second quarter of 2017, investments had touched a high of $1.6 billion, contributing to the 54 per cent yearly growth over 2016. In 2017, Paytm had received an investment of $1.4 billion, which drove the fintech fundraising activity.
According to industry experts, one reason for the decline in the investment value last year was the high base of 2017. The one-off investment in Paytm alone had pushed the deal activity to a high level. However, overall the growth trajectory in the sector is intact and funding demand is robust.
According to a report by Nasscom, around 400 fintech firms operate in India. The regulatory environment post-demonetisation saw mushrooming of fintech startups. In 2018 alone 125 fintech startups launched operations. The funding requirements of these startups will keep private equity/venture capital (PE/VC) funds active in the space.
“Several new business models are emerging in the space and what we have been seeing till now has been just seed funding, except for companies like Paytm. Subsequent series of funding will follow on in the coming years as we have just scratched the surface,” said an expert.
This has been validated by the KPMG data on the deal volumes. Deal volumes have been growing steadily for the past five years and continued to move up in 2018 as well.
Among the larger deals in 2018, Paytm received $356 million from Warren Buffet’s Berkshire Hath-way, PolicyBazaar bagged $200 million from a group of investors led by Softbank Vision Fund and insurance service provider Ebix acquired foreign exchange service provider CentrumDirect for $175 million. These were among the top 10 investment deals inked in the global fintech space in 2018.
“The investor community is funding ventures with the maximum potential of disruption or those which are bringing about a tangible change in the way people get access to loans, effect payments and manage their personal finances. While the degree of adoption and regulatory stipulations may pose hurdles, the growth we see in investments in the fintech space show there is a strong investor appetite for companies with unique business models that address the inefficiency of legacy systems,” said Nita Kapoor, Head-India, New Ventures, News Corp.
India has a large untapped market for fintech startups, as 40 per cent of the population is still unbanked and 87 per cent payments is made in cash.