Fintech investment is slowing as concerns about rising inflation and the prospect of higher interest rates have weighed on economic sentiment.
Elena Noviello | Moment | beautiful pictures
AMSTERDAM – Fintech companies are shedding IPO plans and cutting costs as fears of an impending recession cause a shift in investors’ perception of the market.
At the Money 20/20 conference in Amsterdam, the bosses of major fintech companies sounded the alarm about the impact of the deteriorating macroeconomic situation on fundraising and valuation.
John Collison, Stripe’s co-founder and president, said he’s not sure if the company can justify its $95 billion valuation in light of the current economic climate.
“The honest answer is, I don’t know,” Collison said on stage Tuesday. Stripe raised venture capital last year and is not currently looking to raise it again, he added.
It comes as buy now, postpaid Klarna company is reported seeks to raise new capital at a 30% discount from a $46 billion valuation, while the rival group Confirm has lost about two-thirds of its stock market value since the beginning of 2022.
IPO delay
Zopa, a UK-based digital bank, had been hoping to go public by the end of 2022. But this seems less likely as the inflation shock exacerbated by the war in Ukraine has already taken place. leading to declines in both public and private markets.
“The markets have to be there” for Zopa to go public, CEO Jaidev Jardana told CNBC. “The markets aren’t there – not because of it, not because of the technology.”
“We will just have to wait when the market is in the right place,” he added. “You only want an IPO once, so we want to make sure we pick the right timing.”
The tech sector has been bearing the brunt of the market sell-off since the start of the year, as investors recognized the possibility of a steep rate hike cycle – which sent future earnings in stocks less attractive growth.
Some executives and investors say rising inflation and rising interest rates are making it harder for fintech companies to raise money.
“In the investment community, the mood is very bad,” Iana Dimitrova, CEO of payments software company OpenPayd, told CNBC.
OpenPayd is in the process of raising capital, but it is unclear when the company will be able to complete the round, Dimitrova said.
“People are definitely moving much slower than they were a year ago,” she said. “They’re being more cautious.”
Tight capital
Prajit Nanu, co-founder and CEO of San Francisco-based payments firm Nium, said he is expecting “major consolidation” in the fintech sector.
“Companies that do not raise capital will be consolidated or closed,” he said.
The big worry is that fintech growth will slow along with the overall economy as rising prices force consumers to tighten their wallets. Economists at the World Bank on Tuesday cut their forecast for global economic growth, warning of a prolonged “inflation stagnation” – inflation remains high but growth falters.
Investment in the fintech sector boomed last year, reaching a record $132 billion globally – largely thanks to the impact of the Covid lockdown on people’s shopping habits. However, as worries about rising inflation and higher interest rates hit homes – funding fell 18% in the first quarter from three months earlier to $28.8 billion, according to data. from CB Insights.
Ricard Schaefer, partner at Target Global and an early investor in financial services app Revolut, told CNBC: “There will be more focus on unit economics rather than just frenzied growth.
Stripe’s Collison had a simple piece of advice for fintech founders at the conference: tear up the investor pitch in 2021.
“They certainly can’t play in 2021,” he said. “It needs to be a new pitch, a 2022 pitch.”
Ken Serdons, commercial director of Dutch payments company Mollie, agrees. Fintechs looking for new sources of capital will need to present a “clear path to profitability,” he said.
