The decline in financing is due to reasons such as the shift in companies' business models to the lending sector and other sectors due to the lower sustainability of the payments business.
Ajinkya Kawale Mumbai
Funding for payments fintechs has run into trouble, with total fundraising for the sector falling by about 99 percent between 2021 and 2023, a report said.
According to a PwC analysis, funding for payment fintechs fell from $2.3 billion to $85 million over the same period.
Click here to connect with us via WhatsApp
The decline in financing is due, among other things, to companies shifting their business models to lending and other sectors due to the lower sustainability of the payments business.
Similarly, the valuation of payments startups has declined due to fewer monetization options in the payments space and high operating costs, raising concerns among investors.
The decline in funding also comes amid concerns about the zero merchant discount rate (MDR) on digital transactions such as payments through the Unified Payments Interface (UPI).
Last year, the National Payments Corporation of India (NPCI) introduced an interchange fee for merchant transactions based on prepaid payment instruments (PPI) through UPI. The PPI issuer is paid an interchange fee of up to 1.1 percent if the transaction value is above Rs 2,000, depending on the type of merchant.
NPCI, the organization that runs the UPI ecosystem in India, clarified that the fee would only apply to PPI-based merchant transactions on UPI and basic UPI transactions would continue to be completely free. Currently, most UPI transactions remain free for merchants and users.
Earlier this year, NPCI chief Dilip Asbe had indicated that large traders could be charged a “reasonable” fee on such transactions over the next three years.
There are now new business segments in payments, including cross-border payments and central bank digital currencies (CBDC).
“Several initiatives are being taken to enable integration of UPI into payment systems of various countries. UPI can continue to be used for payments after its integration into the payment systems of six more countries – Sri Lanka, Mauritius, France, the United Arab Emirates, Bhutan and Nepal,” the report said.
Meanwhile, the segment continues to face some challenges, the report says.
These include an increase in fraud cases, a lack of customer education and increased compliance with legal regulations.
The number of fraud cases in the banking sector has more than quadrupled in the last five years and now stands at 36,075. However, the size of fraud cases has come down significantly, from over Rs 1.85 trillion in FY20 to around Rs 14,000 crore in FY24, according to Reserve Bank of India data.
As for the number of fraud cases, these were mostly observed in connection with digital payments (by card or internet), increasing to 29,082 in FY 2024, compared to 2,677 in FY 2020.
In terms of value, fraud cases were reported mainly in the loan portfolio, which saw a gradual decline from Rs 1.81 trillion in FY20 to Rs 11,772 crore in FY24.
“Incurable gamer. Infuriatingly humble coffee specialist. Professional music advocate.”
