Indian fintech funding drops 57% YoY in Q1 2024: Tracxn report

Governance issues and regulatory crackdown have impacted the flow of capital into the Indian fintech sector, with investments dropping 57% year-on-year for Q1 2024.

According to Tracxn Geo Quarterly Report, the fintech segment raised total investments of $551 million in the first quarter of 2024—a drop of 57% compared with $1.3 billion raised in Q1 2023. However, the funding trended positive compared with Q4 2023, when fintech startups secured $346 million—a 59% increase quarter-on-quarter.

Seed-stage funding saw the most decline, with a drop of 75% to $9.9 million in Q1 2024 from $39.2 million raised in the previous quarter. Since Q1 2023, seed-stage funding in the sector has declined by 77%.

In the first quarter of 2024, early-stage fintech startups grabbed $147 million, marking a drop of 42% from $254 million raised in the comparable period a year ago. Early-stage startups had raised $227 million raised in Q4 2023.

On the other hand, late-stage funding experienced a significant surge from the quarter ended December 2023. Fintech startups raised $394 million in Q1 2024 for growth and product expansion—a nearly 5X increase from $80.1 million raised in Q4 2023. However, this still signifies a substantial 60% drop from the $986 million raised in Q1 2023.

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During Q1 2024, the Indian fintech sector saw only two funding rounds exceeding the $100 million threshold, consistent with the figures from Q4 2023. In contrast, the sector saw four funding rounds surpassing the $100 million mark a year ago.

In February this year, Credit Saison raised Rs 1,200 crore in its inaugural external investment as Japan's Mizuho Bank acquired a 15% stake in the company. Similarly, Warburg Pincus-backed Avanse Financial had raised Rs 1,000 crore in equity from Abu Dhabi's Mubadala Investment Co and Avendus PE Investment Advisors in March.

In the first three months of the year, the fintech sector also saw the emergence of a unicorn, with Perfios crossing the $1 billion threshold in valuation after raising $80 million for international expansion in Southeast Asia, the Middle East, and Africa.

In Q1 2024, Paytm faced a significant setback when the Reserve Bank of India imposed sanctions on Paytm Payments Bank Ltd (PPBL), directing its banking offshoot to cease all core operations, including taking deposits. As a result, One97 Communications, the parent company of both Paytm and PPBL, saw its market capitalisation plummet by nearly half between February and April 2024.

The regulatory crackdown also spilled over to financial services companies, including IIFL Finance and JM Financial Products.

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Additionally, a series of financial irregularity cases at startups like Mojocare, GoMechanic, and Rahul Yadav's 4b Networks Haralson have prompted investors to intensify their due diligence efforts. Consequently, funding rounds are now taking longer to complete.

Also, most investors limited themselves to a single funding round during the quarter. Only Y Combinator and Peak XV Partners invested in two startups each.