Industry leaders doubt fintech’s profitability in next few years: report

Industry leaders doubt fintech’s profitability in next few years: report

Industry leaders remain sceptical about the profitability of fintech firms over the next 2-3 years, a new report from venture capital firm Matrix Partners India and Boston Consulting Group (BCG) showed.

This is despite India being a ground for fintech innovation globally, with unique local innovations such as the Unified Payments Interface (UPI) railroad and homegrown RuPay card system.

According to the report, more than 70% of respondents surveyed believe most Indian fintech firms may not be profitable in the next 2-3 coming years due to the increased focus on scale as opposed to profitability and compliance.

This is further supported with industry leaders pointing out product expansion, improving customer service and hiring as the top priorities for the industry at present.

The report includes results from a survey of over 125 founders and senior management at leading Indian fintech firms.

According to the Matrix-BCG report, Indian fintech firms have garnered $29 billion in venture funding between January 2017 and July 2022 across 2,084 deals.

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With 37 listed Indian fintech unicorns – or startups valued at $1 billion more – as of July 2022, India ranks fourth in terms of global fintech unicorn strength, after the United States, UK and China.

Further, there are close to 8,000 fintech firms in India currently.

“We’re at a fork in the road in the India fintech story with sceptics raising many questions. Indian fintechs have undeniable scale, provided superior value to customers and have emerged resilient through a once-in-a-lifetime crisis in Covid-19,” said Vikram Vaidyanathan, managing director at Matrix India.

According to the report, equity funding into Indian fintech firms has grown at 26% compounded annual growth rate (CAGR) over the last four years, but more rapidly from 2020 onwards, fuelled by the post-pandemic impact growth through the increased adoption of digital services.

However, only $3.5 billion was put into Indian fintechs during the first half of 2022, as global macro headwinds continue to impact fundraising for Indian startups, the report highlighted.

“Fintech sector is mission-critical for the Indian economy; 36% of fintech customers are new-to-credit versus 22% for banks. This means a greater focus on profitability and governance,” said Yashraj Erande, managing director and partner at BCG.

According to the industry executives surveyed for the report, cards and unsecured lending continued to be the top choices among survey respondents as areas ripe for disruption.

More than 50% of the respondents surveyed believed that asset quality, customer acquisition cost and regulations were the top challenges to sustainability.

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