Global Fintech Fest 2023—Seen And Heard On Day 1: Funding Winter Not Going Away Anytime Soon

The three-day fintech jamboree is in town again, and this time it is bigger than its previous three iterations. Most of the country’s startups working in various areas of finance have gathered in Mumbai’s Jio World Convention Centre at the Global Fintech Fest to discuss and debate the way forward for the industry. It is also a healthy breeding ground to forge future deals of cooperation or, in odd cases, acquisition.

This time around, the organisers booked an extra floor at the already massive venue to accommodate a larger number of participants. Probably the biggest stress point at the venue is the amount of walking one has to do if they are interested in any more than five topics on a given day.

The first day began with Finance Minister Nirmala Sitharaman addressing the gathering in person. Her emphasis was on building a responsible financial system by focusing on sustainability and, more importantly, inclusion as guiding principles. Probably why she quipped that the organisers do not seem to favour women when most questions in the audience interaction were asked by men.

Over the last few months, the issue of a funding winter in the startup, and specifically fintech, ecosystem has been hogging the headlines. But a look at the excitement and fanfare at the fintech fest could put to rest any such concerns. But dig deeper, and concerns are justified.

One fintech founder who spoke on the sidelines made it clear that the funding winter is real. It all depends on whether you are talking to a "valley" investor or a "lala" investor, he said. The valley investor (referring to investors following the Silicon Valley style of strategy) is happy looking at the gleaming top line to loosen purse strings. The lala investor (referring to the shrewd Indian investor community) is always looking at whether the bottom line makes sense. Increasingly, "we are seeing that even the valley investor is turning to a lala", this founder said.

The funding winter is here to stay for another year at least, said the founder mentioned above. And cash-starved fintech founders will have to go to great lengths to fund their businesses without it affecting their valuations too much.

But that is not the only problem they are facing. Investors are also finding it difficult to identify a truly scalable business model. 

Fuelled by loose monetary policy, VC funds flush with capital were keeping the high-pressure taps open for fintechs in India. A lot of cash was burned by business-to-consumer ventures to acquire customers by offering freebies like cashbacks or attractive gift coupons. But what a lot of fintechs could not achieve was customer loyalty.

Most Indians do not need more than two mobile apps for a single function. So while your copycat products might find a significant number of users initially, they will eventually go back to apps they are used to, the business head of a large business-to-business payments fintech said.

Of course, the B2B guys will criticise the B2C folk, so take those comments with a heap of salt.

B2B businesses, which boast of a more stable business model owing to India’s 150 million merchant base, often fail to mention that less than 50 million merchants have adopted digital payments as a legitimate option, even after a pandemic. Remove the ones who merely put up a QR code or a soundbox at their shop, and the real number lies between 10 million and 20 million.

Payments on their own don't make much money. Unless merchants buy the payroll and inventory management or financing packages from the fintechs, there is likely a revenue lull expected there too, said another co-founder of a mid-sized B2B fintech.

This lack of a scalable business model is also turning investors away. There is a sea of consolidation on the horizon for Indian fintechs, leading to acquisitions and shutdowns soon, the business head mentioned above said.

On that cautionary note, let’s see what Day 2 at GFF holds.