The Indonesian fintech space saw a 46 per cent decline in the number of funding secured in the first half of 2023, according to a report by global SaaS-based market intelligence platform Tracxn.
“While 2021 marked the peak of fintech funding, subsequent years have witnessed a decline. Funding in the fintech sector fell by 46 per cent in 2022 compared to the previous year, with the first half of 2023 experiencing a 38 per cent drop in funding compared to the second half of 2022. This decline has led to the least funded half-year period (H1 2023) since 2020,” the report elaborates.
Fintech startups in Indonesia raised a total of US$322 million in H1 2023, marking a sharp decline of 71 per cent and 38 per cent when compared with US$1.1 billion in H1 2022 and US$517 million in H2 2022, respectively.
The number of funding rounds also saw significant reductions, with a 26 per cent and 58 per cent decline compared with H2 2022 and H1 2022, respectively.
The tally of funding rounds documented in H1 2023 amounted to 14, which was lower than the 19 observed in H2 2022 and notably lower than the 33 seen in H1 2022.
The report also noted that none of the companies from the Indonesia fintech space secured a unicorn status in H1 2023, while H2 2022 witnessed two unicorns.
While the downward trend was observed in seed stage investment, according to the report, this drop in funding is largely due to the significant decrease in late-stage funding. The first six months of the year witnessed late-stage investments worth US$275 million, a drop of 59 per cent and 41 per cent when compared with H1 2022 and H2 2022, respectively.
“As a consequence of the global macroeconomic slowdown, investor sentiment has been cautious, affecting funding across regions, which has led many Indonesian startups to focus more on their domestic market. However, despite the recent challenges, long-term prospects for the sector remain optimistic,” the report stated.
Another notable piece of information from the report named Jakarta as the Indonesian city that dominated the fintech funding landscape with 95 per cent of the funding raised during the period, closely followed by Surabaya with the remaining five per cent.
East Ventures, AlphaTrio and Sovereign’s Capital were also named as the most active investors in the Indonesia fintech space in H1 2023.
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Supporting the fintech ecosystem
In order to strengthen the fintech sector’s overall health, the report highlights the importance of regulations.
“Several regulations from the Indonesian government have been implemented in P2P lending to curb unethical and financially unsound practices, by introducing new capital requirements, reworking the licensing regime, and introducing minimum equity requirements. We anticipate that these actions will benefit both customers and startups in the industry, helping to strengthen the sector’s overall health,” it said.
Recently, a venture capital (VC) association in the country also released a report and recommendation to support VC funding in the ecosystem. It included elements such as education and a clear division between the categories of startup investments.
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