Fintech investment is slowing as concerns about rising inflation and the possibility of higher interest rates dampen economic sentiment.
Elena Novello | moment | Getty Images
AMSTERDAM – Fintech companies are halting initial public offering plans and slashing expenses as fears of an impending recession are causing a shift in investors’ view of the market.
At the Money 20/20 conference in Amsterdam, the heads of major fintech companies sounded the alarm about the impact of the deteriorating macroeconomic climate on fundraising and valuations.
John Collison, co-founder and president of Stripe, said he wasn’t sure if the company could justify its $95 billion valuation given the current economic environment.
“The honest answer is, I don’t know,” Collison said on stage on Tuesday. He added that Stripe raised venture capital funding last year and is not currently looking to raise funding again.
It’s about buy now, pay later for Klarna It said It is looking to raise fresh money at a 30% discount to its $46 billion valuation, while the rival group Confirms It has lost nearly two-thirds of its stock market value since the start of 2022.
Zopa, a British-based digital bank, had hoped to go public by the end of 2022. But that seems less likely because the inflation shocks exacerbated by the war in Ukraine have led to stagnation in both the public and private markets.
“The markets have to be there” for Zopa to go public, CEO Jaidev Jardana told CNBC. “The markets are not there – not for the fin, not for the technology.”
“We will just have to wait until the markets are in the right place,” he added. “You only want the IPO once, so we want to make sure you pick the right moment.”
The tech sector has borne the brunt of a massive sell-off in the market since the start of the year, as investors digested the potential for a price spike — making future earnings for growth stocks less attractive.
Several CEOs and investors said that rising inflation and rising interest rates are making it difficult for fintech companies to raise money.
“Within the investment community, the mood is very bleak,” Iana Dimitrova, CEO of payment software company OpenPayd, told CNBC.
Dimitrova said OpenPayd is in the process of raising funds, but it is unclear when the company will be able to finish the round.
“People are moving much slower now than they were a year ago,” she said. “They are more careful.”
Prajit Nano, co-founder and CEO of San Francisco-based payments company Nium, said he expects a “massive consolidation” in the fintech space.
“Companies that won’t make money will either merge or close,” he said.
The big fear is that fintech growth will slow along with the economy in general as higher prices force consumers to tighten their financial constraints. Economists at the World Bank on Tuesday lower their expectations For global economic growth, a warning of prolonged ‘stagflation’ – a situation in which inflation remains high but growth stalls.
Investment in the fintech sector boomed last year, reaching a record $132 billion globally — thanks in large part to the effects of the Covid-19 lockdowns on people’s shopping habits. But — as concerns about rising inflation and rising interest rates took hold at home — funding fell 18% in the first quarter of the previous three months to $28.8 billion, according to data from CB Insights.
“There will be a greater focus on the economics of unity versus just crazy growth,” Ricard Schaeffer, partner at Target Global and senior investor in financial services app Revolut, told CNBC.
Stripe’s Collison had a simple piece of advice for fintech founders at the conference: shred their 2021 investor presentation.
“They certainly cannot participate in the 2021 stadium,” he said. “It should be a new show, the 2022 stadium.”
Ken Serdons, chief commercial officer of Dutch payments company Molly, agrees. He said fintech companies seeking new funding now would need to provide a “clear path to profitability”.
“Twitter practitioner. Beer evangelist. Freelance gamer. Introvert. Bacon aficionado. Webaholic.”