Investment in fintech is slowing as worries about rising inflation and the prospect of higher interest rates have rattled economic sentiment.
Elena Noviello | time | Getty Images
AMSTERDAM — Fintech firms are pausing IPO plans and cutting spending as fears of a looming recession cause a shift in how investors view the market.
At the Money 20/20 conference in Amsterdam, the bosses of the major fintech players sounded the alarm about the impact of a deteriorating macroeconomic climate on fundraising and valuations.
John Collison, co-founder and chairman of Stripe, said he’s not sure the company can justify its $95 billion valuation given the current economic environment.
“The honest answer is, I don’t know,” Collison said onstage Tuesday. Stripe raised venture capital funds last year and is not currently looking to raise again, he added.
It’s about buying now, paying later. Klarna is reportedly looking to raise new money at a 30% discount to its $46 billion valuation, while rival group Affirm has lost around two-thirds of its market value since the start of 2022.
Zopa, a Britain-based digital bank, had hoped to go public by the end of 2022. But that seems less likely as inflationary shocks exacerbated by the war in Ukraine have led to a collapse in 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 fins, not for the technology.”
“We’ll just have to wait for the markets to be in the right place,” he added. “You only want to do an IPO once, so we want to make sure we pick the right time.”
The tech sector has felt the brunt of a year-to-date selloff as investors digested the likelihood of a sharp rate hike cycle, making future earnings on growth stocks less attractive .
Several executives and investors have said rising inflation and interest rates are making it harder for fintech companies to raise cash.
“Within the investment community, the mood is very gloomy,” Iana Dimitrova, CEO of payment software company OpenPayd, told CNBC.
OpenPayd is in the process of raising funds, but it’s unclear when the company will be able to finalize the round, Dimitrova said.
“People are now moving much slower than a year ago,” she said. “They are more careful.”
Prajit Nanu, co-founder and CEO of San Francisco-based payments company Nium, said he expects “massive consolidation” in fintech.
“Companies that aren’t going to grow are either going to consolidate or close,” he said.
The big fear is that fintech growth will slow along with the broader economy as soaring prices force consumers to tighten their purse strings. World Bank economists on Tuesday revised down their forecast for global economic growth, warning of prolonged “stagflation” – a situation where inflation remains high but growth stagnates.
Investment in the fintech sector exploded last year, hitting a record $132 billion worldwide – largely thanks to the effects of Covid lockdowns on people’s shopping habits. But – as worries about rising inflation and rising interest rates loom – funding fell 18% in the first quarter from the previous three months to $28.8 billion, according to data from CB Insights.
“The focus will be more on unit economics than crazy growth,” Ricard Schaefer, a partner at Target Global and an early investor in financial services app Revolut, told CNBC.
Stripe’s Collison had simple advice for fintech founders at the conference: tear up the 2021 investor pitch.
“They definitely can’t pitch 2021,” he said. “It has to be a new pitch, a pitch from 2022.”
Ken Serdons, commercial director of Dutch payment company Mollie, agreed. Fintechs looking for new funds will now have to present a “clear path to profitability”, he said.