The tide may be going out for fintech firms, as yet another unicorn slashed its workforce this week amid falling valuations.
“Fintech globally has been facing issues to due Covid, War, Inflation,” tech investor Yogesh Gaikwad, founder of Yuvidigital and a board member at Plato Data Intelligence, told Proactive Investors.
“Funding has taken a hit in the UK, EU, USA, China, India, all major ecosystems.”
Global funding for fintech companies teetered on the edge of its meteoric rise following the Covid-19 pandemic, falling by more than a third in 2020 to US$124.9 billion, according to Statista data.
Fintech funding rose again last year to US$210.1bn, driven largely by the US market which accounted for almost 80% of fintech backing.
However, there are clear signs that fintech companies are struggling amid rising interest rates, high inflation, cryptocurrency declines and weakening consumer confidence.
Financial technology companies proliferated during a period of unusually low interest rates after the financial crash of 2007-08.
It is unknown what long-term impact high inflation, which is putting pressure on retail spending, and rising rates of interest that could impact customer deposits in digital accounts will have.
The rising cost of capital also means that businesses turning to the debt markets after raising early-stage funding from private investors may struggle to secure it cheaply.
Zepz, which operates money-transfer service WorldRemit, will reduce its headcount to 1,000, Sky News reported, just days after its chief executive Breon Corcoran quit.
The company raised US$292mln in a late-stage series E funding round last autumn, attracting new investment from Farallon Capital and returning investors such as Leapfrog, Accel and TCV.
Earlier this month, the chief executive of Amount, a spinout of online lender Avant that raised US$99mln in a Series D funding round last year and counts Goldman Sachs (NYSE:GS) among its investors, said it would cut 18% of its workforce.
These job losses add to layoffs at a swathe of fintech firms this year, including Wealthsimple, which cut about 13% of staff, Klarna, banking app Curve, Gemini, Nuri, Main Street, BizPay and brokerages Robinhood and Freetrader.
Finance was among the biggest sector for layoffs this year, sacking 7,183 staff, including job losses at more than 3,500 fintech firms, layoffs.fyi data shows.
Other fintech firms such as payment transfer start-up Wise PLC (LSE:WISE) have suffered huge drops in valuation. The Shoreditch-based start-up’s shares have fallen 60% since its listing on the London Stock Exchange at a trumpeted £8bn valuation. It emerged separately this week that its chief executive Kristo Kärmann is being investigated by the Financial Conduct Authority over a tax default.
“We have kept the teams lean and are using funds to optimum utilisation. We are not in panic mode. We are still taking calculated risks. Every crisis brings a great opportunity,” said Gaikwad.