Is fintech a canary in the recession coal mine? | WARC | The Feed
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Is fintech a canary in the recession coal mine?
As previously sky-high valuations of fintech companies plunge earthwards, there are questions over how many of these companies – relied on by consumers and retailers alike to smooth the online customer experience – will be able to weather the coming storm.
Context
In recent years, fintech companies have grown on the back of strong funding, the digitalisation of financial services, and a hefty dose of hype. During the pandemic, as businesses were forced online, they have been well placed to capitalize on the acceleration of e-commerce, especially in payments innovation and changes to the customer journey.
Has the bubble burst?
But the skies appear to be darkening: according to CB Insight’s State of Ventures report, funding for fintech startups was down both globally and in the US in the second quarter of 2022; M&As and IPOs in the category also slowed. While funding was still up on 2020, the decline from 2021’s boom year indicates the ‘easy money’ days may be over.
Fintech startups were the top recipients of venture capital globally in 2021, bringing in about 21% of total dollars raised, writes TechCrunch. But in 2022, fintech makes up the third largest number of layoffs by percentage – about 10%.
According to analysis by the Financial Times, shares in fintechs publicly listed since 2020 have dropped 50% on average since the start of 2022, compared to an average 29% on the NASDAQ, with cumulative market capitalisations across the listed fintech brands falling US$156bn this year.
Many fintech brands are now facing a difficult few months as largely untested business models face the prospect of challenging economic conditions; recession is staring down the global economy and many are posting continuing losses.
For their brand partners, there is likely to be a sense of unease. Payment options such as Buy Now Pay Later and one-click purchases have drawn in new consumers – especially Gen Z – and uncertainty in the sector may stall plans to accelerate implementation of different payment options.
State of play
- Klarna, a European BNPL firm, saw its sky-high valuation of $45.6bn sink to less than $7bn – an 85% drop on the figure declared in June 2021. The company was able to raise $800m at the lower valuation.
- Paypal’s stock has declined approximately 60% since Jan 2021.
- It’s not all bad news: money management fintech company Revolut will partner with Stripe to expand payments capabilities though the UK, Europe and new markets.
- B2B fintech brands such as Pleo are seeing success with a solution for a specific business pain point: expenses. How fintechs capitalize on ‘the future of work’ – a hot topic in a post-COVID world – will be an area to watch.
Source: TechCrunch, Financial Times, Wall Street Journal, CB Insight
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