Indian financial-technology companies raised the highest amount of venture capital fund in 2021 in the Asia-Pacific region, netting $5.94 billion from 236 deals, according to a S&P Global Market Intelligence report.

Southeast Asia-based private fintech entities weren’t too far behind, raking in $4.70 billion across 217 transactions.

The scramble to ensure they didn’t miss out on the precipitous growth in private fintech segment saw venture capitalists pour $15.69 billion into these enterprises in 2021 in APAC, compared with just $5.87 billion in 2020.

"The case for technology-driven business models further strengthened in most of the APAC region in 2021, driven by an accelerated consumer shift toward mobile channels and favorable regulatory frameworks in banking, insurance and payments," the report said.

In the Chinese fintech space, however, investor interest has weakened, as authorities sharpen regulatory scrutiny. Fintechs in mainland China saw only 73 deals. Yet, VCs remain open to funding mature fintechs while being chary of early-stage startups.

Key Funding Trends

VC firms are increasingly tilting toward fintech companies with business-to-business (B2B) models, as they typically burn significantly less cash than their consumer-facing peers. As such, the report said, PineLabs, RazorPay and BharatPe together attracted about $1.89 billion of venture capital between 2020 and 2021.

The appeal of B2B models among investors extends to other fintech segments in the Asia-Pacific region.

The APAC region is turning cashless at a fast clip, amid growing appeal of noncard payment methods such as digital wallets. Across the region, fintech arms of large digital conglomerates are increasingly gaining market share. In India, for instance, Walmart-owned PhonePe and Alphabet’s Google Pay held market shares of 44% and 35%, respectively, in the first six months of 2021.

Outlook for 2022

The report says that venture capitalists would exercise restraint this year, but fintech firms with a clear, demonstrable path to profitability won’t find it tough to raise capital.

The US Federal Reserve on Wednesday raised interest rates for the first time since 2018, and as the reversal of ultra-loose monetary policies, instituted in the wake of the pandemic, accelerates, venture capitalists will likely gravitate toward fintechs with slower cash burn rates.

Further, B2B fintechs may overshadow their business-to-consumer peers, winning VC investor attention due to their superior unit economics.

Some consumer-facing fintech firms that have been struggling to gain traction may be more amenable to acquisition, while B2B fintechs with positive cash flows or those nearing breakeven could go for inorganic growth.