Investors bet big yet wary on fintech growth

Debangana Ghosh | | Updated on: Dec 21, 2021
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Trajectory of BNPL, neobanks and cryptos will determine their sustained interest

While 2021 has seen record inflow of funds into India’s fintech ecosystem, a few new categories gained the most including Buy Now Pay Later (BNPL), neobanks and cryptocurrencies.

Though bullish after kick-starting these businesses, investors want to see how efficiently they manage growth, non-performing assets (NPAs) and related risks.

Monetisation models

Ashish Sharma, MD & CEO, InnoVen Capital, whose fintech bets include MobiKwik, KrezyBee, Coverfox, Freecharge, Slice and MSwipe among others, told BusinessLine that fintech will continue to attract more funding in the next two years due to the size of the market.

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But investors will now keenly watch several areas including “how fast can payment companies build sustainable revenue models. The same is true for platforms which have invested a lot of money to acquire customers and are now experimenting with different monetisation models”.

Most start-ups, including digital ledger apps like Khatabook and OkCredit, have been actively burning cash to get a steady customer base and are now trying to find steady revenue models in digital lending, be it to consumers or businesses.

“How credit quality for the BNPL segment will play out is yet to be seen. Will neobanks be able to carve out a meaningful market for themselves driven by differentiated offerings and superior experience? And how will crypto regulation evolve?” Sharma added.

Till December 8, fintech firms raised $8.02 billion across 363 rounds in 2021 as compared to $2.83 billion over 296 rounds in 2020, an increase of over 183 per cent, according to data from Tracxn.

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Several fintechs entered the coveted unicorn club this year as they kept raising subsequent rounds in the same year at 2X-5X valuation.

Sectors to watch for

Apoorva Sharma, Partner, Stride Ventures, which has invested in Avail Finance, Ziploan, Gramcover and CredAvenue among others, is optimistic about the heavily funded insurtech, neobanks, wealth management and digital consumer lending segments paving the way for the fintech ecosystem in India.

“India has an insurance penetration of about 4 per cent. Insurtech is driving innovation on digital distribution which will help increase penetration. Meanwhile, neobanks are offering personalised banking experiences for underserved customers; many fintechs have raised a lot of capital here. Wealthtech is transforming the investment landscape and giving retail customers avenues of investment across asset classes,” she said.

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“Digital consumer lending has been the most funded segment and continues to rise on back of alternative data sources, low turnaround times, minimal operational requirements and open architecture like GSTN and account aggregators," she told BusinessLine .

3one4 Capital, which has invested in start-ups like Jupiter, Open and LoanTap, believes that India has a unique advantage of becoming one of the largest fintech markets with the acceleration of digital payment adoption, and population scale technologies like Immediate Payments Service (IMPS), Unified Payments Interface (UPI), Rupay and Aadhar.

“Built on top of digital public goods like UPI and Aadhar, India supports a unique fintech ecosystem that presents differentiated opportunities for tech companies. This space should continue to see many attempts at innovation, and more value creators emerging,” said Pranav Pai, Founder and CIO, 3one4capital.

Published on December 21, 2021

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