Fintech Sector in India Faces Decline in Funding Due to Tighter Regulations

The fintech sector in India has seen a significant drop in funding since last year, mainly due to stricter government regulations. While scaling up has become costlier for many firms, industry leaders believe these regulations are essential for the sector’s long-term health.

According to Tracxn, funding for fintech dropped by 63% in 2023, receiving $2 billion compared to $5.4 billion in 2022 and $8.4 billion in 2021. In the first quarter of 2024, the sector raised $551 million, a 50% decline from the same period last year.

Shreya Suri, Partner at IndusLaw, noted that in the past 5-7 years, many tech startups entered India’s financial sector, often operating on the edge of regulations. Some of these were not trustworthy and posed risks to users. This led the Reserve Bank of India (RBI) to tighten regulations, making the market safer but more challenging for startups.

The Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority of India (IRDAI) followed with stricter rules, ensuring that only compliant companies could operate. This helped streamline the previously fragmented market.

Arun Tiwari, co-founder of Saswat Finance, said that in the past, innovation often overlooked compliance. Now, regulators are stricter to ensure stability and protect all stakeholders, including customers. Tiwari believes that compliant businesses still attract investment and that these regulations help fintech firms prepare for sustainable growth.

His co-founder, Ravi Ranjan Chaudhary, mentioned that early fintech firms in India faced few regulations, leading to a period of creative freedom. Now, with more data, regulators are smarter and more effective.

Rohit Krishna, General Partner at WEH Ventures, sees this as a natural cycle, with firms needing time to adjust to clear regulatory frameworks. He remains optimistic about future fintech innovation.

Both Tiwari and Chaudhary agree that regulations should be seen as tools for strengthening the fintech sector, not obstacles. Chaudhary emphasized that regulations are developed in collaboration with fintech companies, ensuring they are practical and effective.