Fintechs Face Difficulty In Raising Funds

While India has moved up to second position after China in terms of high adoption of fintech solutions by banks, the sector is still grappling with major issues, including lack of early-stage funding, according to a survey.

The other major issues that are dragging the fintech sector are limited access to future-tech skills, talent, and limited understanding of regulations, says a study by leading private lender YES Bank.

The study adds that though several initiatives have been undertaken by the Centre, including creation of the Startup India Fund and fintech-focussed VCs, 81 per cent fintechs at the ideation stage said that they faced “severe difficulty” in raising funds.

The study also says that, as a result, managing the burn rate (the investments made to acquire a customer) becomes arduous for the sector, which is still at a very nascent stage in India.

The study, ‘India Fintech Opportunities Review’, is based on responses and feedback gathered from over 600 fintech companies, including 123 overseas companies conducted over a period of 90 days between November 2017 and January 2018.

About 74 per cent of the start-ups have a burn rate of $10,000-50,000 (around ₹6.4 lakh to ₹32 lakh) per annum and only 7 per cent of them are profitable, the study says.

There are over 1,200 fintech players in India and 64 per cent of these have been in business for three years or less, and the median employee strength is 14 people.

The sector is dominated by young tech entrepreneurs with 91 per cent coming from the STEM (science, technology, engineering and mathematics) background and 60 per cent under the age of 40.

Rana Kapoor, MD and CEO, YES Bank, said, that despite the challenges facing the sector, the overall outlook is largely positive with increased collaborations between banks and fintech firms for product and service innovation.