2023: Indian FinTechs brace up for regulatory changes, funding challenges

*Investments in Indian FinTechs 2022 are still significantly higher than in 2020, but the country’s operating environment is expected to get tougher next year in regard to regulatory changes and funding challenges in the financial ecosystem

Gbenga Kayode | ConsumerConnect

As the country’s operating environment is expected to get tougher for Indian Financial Technology (FinTech) startups 2023, multiple founders and investors have said worsening funding, winter and regulatory changes have dogged the industry over the past few months.

Regulatory affairs

In regard to the regulatory overhang with FinTechs  continuing, and the Reserve Bank of India (RBI) taking steps to regulate various aspects of the sector, investors are expected to remain selective in their approach, leading to potential consolidation in the coming months, sources said.

It was learnt with the release of the new digital lending guidelines, Banks and Non-banking Finance Companies (NBFCs) have also moved away from First Loan Default Guarantee (FLDG) partnerships, dealing a blow to smaller FinTechs by forcing them to lend at higher costs, entrepreneurs and executives told ETTech.

FinTech deals

Compounding the challenge, the Reserve Bank of India has been stringent in terms of providing NBFC licence to FinTech firms, according to multiple entrepreneurs.

FinTech’s funding winter  Data sourced from research firm Tracxn, funding in the Indian FinTech ecosystem almost halved to roughly $5.7 billion in 2022 from $10.3 billion in 2021, report said.

However, investments in Indian FinTech this year are still significantly higher than in 2020, when the sector garnered just $2.02 billion in equity funding.

FinTech funding: Consolidation underway?

Report November 25 had indicated that digital payments major PhonePe was close to buying buy-now-pay-later (BNPL) startup ZestMoney, signalling a potential wave of consolidation in 2023.

Kunal Pande, partner to KPMG in India, said: “The regulation landscape has made several practices such as FLDG unavailable to FinTechs.

“This coupled with the funding winter ensuing globally means the coming year is likely to see dampening in terms of funding.”

Pande stated: “Investors are expected to become more selective.

“There will be consolidation in the market, an uptick in collaborative models with regulated entities and exit of firms with a weaker footing.”

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