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Fin-tech startups hit purple patch as VCs make a beeline

31 May, 2017

If there is one sector in the Indian startup landscape that has bucked the funding slowdown, it’s financial technology, or fin-tech as it is popularly called. Ventures in the space seem to be the new darling of investors, who are writing cheques generously to place their bets on the sunshine sector.

A VCCircle analysis shows that since the beginning of the year, at least 25 fin-tech startups have raised venture funding. And the inflows have been well-distributed across the broader fin-tech space—while digital wallet firm Paytm may have got the biggest slice of the funding pie, raising a whopping $1.4 billion from SoftBank, online lending and payment gateway startups are also hot in terms of investor interest.

“While payments and lending continue to drive most fin-tech investment in India, other areas are quickly gaining momentum. The government is expected to release regulations for fin-tech, particularly related to peer-to-peer lending, which could lead to additional activity,” Neha Punater, head of fin-tech, KPMG in India, said in a recent report.

Wealth and expense management, financial advisory and investment platforms have also managed to raise capital over the last five months.

The list only includes tech-enabled startups. We have not listed fund-raises by NBFCs, which operate offline

Rising consolidation
The heightened interest in the sector is also evident from the numerous mergers and acquisitions that have happened this year, in the aftermath of the government’s demonetisation move. The most recent one was US-based Ebix Inc. acquiring an 80% stake in India’s ItzCash Card Ltd for $120 million (Rs 778 crore), a move aimed at gaining a foothold in India’s fast-expanding digital payments market. Besides, France-based Ingenico Group and Dubai-based OMA Emirates bought payment gateway company TechProcess Solutions and mobile payment service firm MobiSwipe, respectively.

Even though most of these acquisitions are in the enterprise space, the consumer-led payments industry is also likely to see consolidation once global giants like WhatsApp, Amazon, Samsung and PayPal enter the scene. The Paytm-FreeCharge merger, if it happens, will just be a start.

Dedicated funds
To exploit this promise, many investors have launched fin-tech focused funds this year.

Rahul Chandra, co-founder and managing director at Helion Venture Partners, is looking to raise $100 million for early-stage fund Unitary Helion. The fund plans to make Series A investments in 18-20 companies across fin-tech, digital marketplaces and value-chain innovation covering financial services, agriculture, logistics and healthcare.

“India is at a juncture where the platform for digital solutions has been laid with government-led initiatives such as Aadhar, UPI, and GST,” Chandra had said.

Global investment bank Nomura recently expressed interest in investing in fin-tech startups in India, using its newly set up $100-million fund. The Japanese investment bank also launched a global accelerator-cum-creation platform to collaborate with startups for building solutions for capital markets and investment banking.

IDFC Alternatives, the private equity arm of IDFC group, partnered with venture capital firm Parampara Capital to launch an early-stage fund targeting innovative startups.

Global impact investor Accion International raised a $141-million fin-tech fund to invest in companies offering access to financial services to underserved consumers and businesses in emerging markets, including Asia.

“Three billion people around the world are underserved by the financial sector, with limited or no access to quality savings, credit, insurance and payments. The fund will support innovators using technologies to help create a financial system that works for everyone,” Michael Schlein, CEO and president of Accion, had said.

In March, Bahrain launched a fin-tech fund to invest in startups in the Middle East and Asia. The new fund earmarks a certain portion of its investment assets for startups.

As capital pours in and startups crank up innovation, it appears investors just can’t afford to miss the fin-tech bus.

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Fin-tech startups hit purple patch as VCs make a beeline

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