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Fintech M&A Activity Led By Lending Sector In 2023; Start-Up Incorporations Drop By 70% From 2021

There have been around 30 acquisition deals in the Indian Fintech space in 2023 as compared to 37 and 29 deals in 2022 and 2021 respectively.

Fintech M&A Activity Led By Lending Sector In 2023; Start-Up Incorporations Drop By 70% From 2021

Outlook Start-Up Desk

POSTED ON February 20, 2024 4:21 PM

Lending fintechs made 30 per cent of the total Fintech acquisitions recorded in 2023 amid increased regulatory scrutiny around the sub-sector, according to an analysis by GrowthPal, a data-driven deal sourcing platform. 

The other two sub-sectors with high acquisition frequency were Payments and Wealthtech. While Wealthtech and Payments have recorded high M&A volumes for the past two years, the spurt in lending sub-sector acquisitions is a recent trend. This could be an aftermath of the growing regulatory scrutiny in the lending space.  

According to the company’s database, there have been around 30 acquisition deals in the Indian Fintech space in 2023 as compared to 37 and 29 deals in 2022 and 2021 respectively. Some of the notable M&A deals in lending were Bridge2Capital acquired by IIFL Finance, FinFort acquired by Yubi, and ORO Wealth acquired by InCred Capital among others.  

A 70 per cent decline in fintech start-up incorporations 

There has also been a decline in the establishment of new fintech start-ups over the years. In 2023, around 20 Fintech start-ups were incorporated in India, as compared to 45 and 73 new start-ups in 2022 and 2021 respectively.

This is about 70 per cent less than the new fintech start-ups incorporated in 2021. In this analysis, GrowthPal excluded start-ups that had less than 10 employees or did not have a website or LinkedIn page. 

“During 2020 and 2021, both regulators and founders gained insights into the capabilities and limitations of emerging fintech products. However, the subsequent introduction of new regulations and compliance measures across industries has created a challenging environment for launching new fintech ventures,” said Maneesh Bhandari, founder and CEO of Growthpal.  

The report added that while these protective measures are essential for industry integrity, they have inadvertently impeded the establishment and growth of innovative fintech start-ups, contributing to the observed reduction in new company formations in the fintech sector.   

Majority M&As done by large companies  

Out of the 30 acquisitions in 2023, 20 buyers were large acquirers (>1000 employees or funding > $50 million), 6 were mid-sized acquirers (>500 employees or funding >$20 million) and 5 were small acquirers (<500 employees or funding <$20 million).   

The key reason for acquiring was product enhancement and adding more capabilities to the existing product stack. The other reasons included Client acquisition, Geography expansion, and Market expansion. In 2022, out of the 26 acquirers, 15 buyers were large acquirers, 3 mid-sized acquirers and 8 small acquirers. The highest deals happened in the Enabler segments (35 per cent) followed by Payments (30 per cent) and WealthTech (21 per cent)   

According to the report, the fintech ecosystem is heavily dependent on venture capital (VC) backing to ensure the viability of its operations, as monetisation has been a challenge in the fintech space.   

The global fintech sector garnered $46 billion in funding between Q3 2022 to Q3 2023, as compared to the $119 billion raised between Q2 2021 and Q2 2022. This signifies fintech companies’ growing focus on rightsizing and business fundamentals. 

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