Winds of change in fintech lending

$700m+ of funding in pre-Series C lending cos. since 2018

Winds of change in fintech lending

The worst economic crisis in almost a century

We think we wouldn’t be alone in wishing we could just skip 2020 or go back to 2019 to prepare for the 2020 Covid-19 financial crisis. Yes, it’s a crisis that’s been called worse than the Great Depression by IMF, causing the global output to shrink by 4.9%.

The recovery in 2021 is also expected to be weaker than earlier estimates. There have been two other economic crises in recent memory which have had a huge global impact: The Dotcom bubble of the 1990s and the 2008 Lehman crisis. But to be honest, both progressed slowly and had maximum impact on the most developed countries, spreading slowly with lesser impact to lesser economies. The slow burn gave enough time for various sectors to take evasive measures or chart alternative strategies. The Great Lockdown in contrast was so sudden that it has simply pulled the plug on economic activity across sectors and has impacted the macroeconomic fundamentals of developed economies like the US, UK, France, and growing economies like India and Brazil alike. Simply put, no other economic or social event, after the Great Depression, has caused such a huge slump in economic output as well as consumption.

That said, are Banana bread and Dalgona coffee the only silver linings in the Pandemic storm clouds?


In addition to the remote classrooms fuelled Edu-techs, surely Indian Fintechs have a few things to cheer about. Let’s take a closer look at how a few seed funds have beaten all odds to invest in this space in 2019 and are also doing so this year.

In 2018, the Indian FinTech market received total VC/private equity (PE) investments of approximately USD 1.83 billion across 165 deals. Payments accounted for the largest share with USD 709 million across 21 deals, followed by alternative lendingwith USD 530 million across 67 deals, mirroring global trends.

A vast majority of funds raised last year in India went into payments start-ups, accounting for 58% share. Insurtechs raked in 13.7% of the investments, while fintech in lending accounted for 10.8% of the total, the data from CB Insights revealed. The latest data, however, reveals that lending could be at the top this year, followed by banking and payments. While the number of new Lending Fintech startups went down, the funding received by them has hit top gear.


According to Pankaj Jadhav, former CEO of Paytm Money, the trend has shifted from banking & payments apps to lending apps in 2020:

Credit: @BeingPractical

Global players open their war chest for Indian Fintechs

  1. India’s fintech players have also caught the fancy of global giants like Amazon, which is slowly investing in Indian start-ups to reach its ultimate strategic goal of creating a payment infrastructure so that its consumers buy more and sellers sell more on its website. Amazon has already onboarded 5 lenders to the platform including portfolio companies Capital Float, Capital First, Bank of Baroda, Aditya Birla Finance, and Yes Bank.
  2. In 2019, Amazon announced its first lending API integration with the lending platform FlexiLoans. With this partnership, Amazon sellers in India can get loans set up directly in their Amazon Seller Dashboard. FlexiLoans offers underbanked Amazon sellers funding and collateral-free loans and processed 10,000 loans between 2016 and 2019
  3. Similarly, at the 2020 World Economic Forum, Naspers CEO Bob van Dijk, expressing optimism about Indian Fintech space, shared that they will double their investments in India’s tech start-up ecosystem, with special focus on new-age credit and financial products.

Gateway to funding heaven

If you can figure a way out to beat these challenges by walking the extra mile and building a rapport with probable investors, you will certainly be able to stem the tide and secure funds for your seed-stage start-up.

Of course, you could also use our list of seed-stage investors who have been active in the last 6 quarters in the fintech is on your wish list in light of the above reality, consider it fulfilled. Because our team has burrowed deep into available data and come up with a list of active seed-stage investors who have invested in seed or early-stage start-ups from 2018 till Q1 2020.

So now, if you are in need of funds and need to know which door to knock — here is the key to that.

Source: Inkredo research

The most active early-stage investors in lending fintech companies post-2018 have been, surprisingly, the likes of Sequoia and YCombinator, among others. Sequoia has transformed its strategy from growth-stage funding to seed-stage funding — the highest number of deals in lending tech since 2018! Probably because it is writing the highest valued cheques in early-stage companies. Unitus Seed Fund and Accion are other marquee names who have been actively investing in early-stage lending Fintech startups since 2018.

YCombinator has expanded its focus from Silicon Valley to Asia, especially India and is gradually increasing its focus in the fintech space. Out of the 24 Indian startups (against 14 previously) elected for YC Winter 2020 batch, 10 belong to the Fintech space and out of those, the majority are lending focused startups.

In addition to the above, Quona and Accion have 100% fintech-focused funds. Bharat Inclusion Fund is a 100% India focused fintech fund. Bharat Inclusion Seed Fund is an initiative of CIIE (IIM Ahmedabad) in partnership with the likes of Bill and Melinda Gates Foundation, Michael and Susan Dell Foundation, and others and has incubated lending startups like Setu, Kaleidofin and Bridge2Cpital.

A word of caution

However, a word of caution here for start-ups aspiring to raise funds in the current scenario:

  1. Continued travel restrictions have led to a lack of networking opportunities and face-to-face meetings between VCs/ Seed funds/Angels.
  2. Convincing an investor over video meetings when they are multitasking or are too distracted has never been tougher for entrepreneurs.
  3. Investors find the converse also true, according to some fund managers, it’s difficult to convince entrepreneurs on video calls as compared to one-to-one meetings.
  4. This lack of trust has led investors who would have otherwise risked an investment on a seed-stage start-up to instead invest in later-stage fintech start-ups that have more proven record or ones they have already invested into, previously.
  5. Also, China has been one of the biggest sources of seed funding in India, and Covid-19 along with recent border skirmishes between India-China has dried up the funding tap for Indian fintech firms.

Thanks to Kumar Tanmay.