What are the Key FINTECH Funding Trends during FY 2020-21?
The Fintech landscape continues to grow at a rapid pace. Over the years, the adoption of FinTechs’ products has increased significantly among the customers as they provide superior and personalized experiences to customers via digital channels. From substantial funding rounds to the acceleration of digital payments and the growth of eCommerce – the fintech sector continues to demonstrate its agility, efficiency, and improvement, even during the most challenging of times.
According to a report shared by ResearchAndMarkets.com, the Global FinTech Investment Market is expected to show a growth of $54.56 billion from 2021-2025 and progressing at a CAGR of 7.76% during the forecast period.
This study identifies that the disintermediation of banking services and technologies such as artificial intelligence and big data will act as the primary drivers of the FinTech investment market during the coming years. Investments in FinTech have been growing since the global financial crisis and can be attributed to the limitations of the traditional financial services industry. The recent Covid-19 pandemic has also impacted the Global economy severely and has led to the accelerated growth of the FinTech industry. On the one hand, large financial institutions are looking to team up with new technology companies to access the new markets; Fintechs seek to partner with leading financial players to expand their market and services.
Key Trends in Fintech Investment
FinTechs have witnessed substantial funding from venture capital and private equity firms. A significant part of these investments went into FinTechs operation and digital payment. The past couple of years have also seen significant investments in other segments such as alternative lending and InsurTech.
- Digital Payment: In the past five years, an investment of US$ 4.6 billion across 219 deals was received by digital payment FinTechs. During the same period, 532 such FinTechs were founded. However, this period witnessed low customer loyalty, increased competition, regulatory restrictions, and more. Consequently, the number of entrants and the funding in the following years has slowed down.
- Alternative Lending: These FinTechs aim to address the large demand-supply credit gap by using conventional and alternative credit scoring models. Besides this, they also use digital workflows to augment customer experience and attain operational efficiencies. While the number of new alternative lending FinTechs has been decreasing over the past years, investments have been rising in this segment.
- Investment Tech: With more and more customers shifting towards mutual funds and (direct equities, Investment Tech FinTechs are projected to show consistent and rapid growth in the future. The development of this industry is enabled by multiple factors such as an increase in the wealth of customers in selected segments, easy access to information, and the adoption of digital channels.
- Bank Tech: These FinTechs have witnessed a mounting trend in funding as banks are willing to team up with FinTechs to augment their operational efficiency.
- InsurTech: The dynamics of the Indian insurance industry witnessed a change with the rise of InsurTech. The funding received by InsurTechs has increased significantly over the years as FinTechs have disrupted the traditional insurance value chain by providing on-demand bite-sized insurance, remote claims management capabilities, mobile-powered micro-insurance platforms, and chatbots for a better customer experience.
- RegTech: Though the funding for these FinTechs has remained low in the past few years, the demands for such solutions are expected to rise as solutions are relatively niched with increasing emphasis on governance and compliance.
2021 had witnessed some of the significant FinTech valuations till-date with the majority of the investment divided into two main categories, i.e., payments and accounts products. The future for these segments will shape up with innovative technologies and ideas and with growing opportunities.