‘The mood is very grim’: Once-hot fintech sector faces IPO delays and consolidation

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Investment in fintech is slowing as worries around rising inflation and the prospect of higher interest rates have dented economic sentiment.

Elena Noviello | Moment | Getty Images

AMSTERDAM — Financial technology companies are putting IPO plans on hold and cutting expenses as fears of an impending recession cause a shift in how investors view the market.

At the Money 20/20 conference in Amsterdam, bosses of major fintech players sounded the alarm about the impact of a deteriorating macroeconomic climate on fundraising and valuations.

John Collison, co-founder and president of Stripe, said he was unsure 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 Tuesday. Stripe raised venture capital funding last year and is not currently looking to raise again, he added.

It comes as buy now, pay later firm Klarna is reportedly looking to raise fresh funds at a 30% discount to its $46 billion valuation, while rival group Affirm has lost roughly two thirds of its stock market value since the start of 2022.

IPO delays

Zopa, a digital bank based in Britain, had hoped to go public by the end of 2022. But this is looking less likely as inflation shocks exacerbated by the war in Ukraine have led to a slump in both 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 fin, not for tech.”

“We will just have to wait for when the markets are in the right place,” he added. “You only want to do an IPO once, so we want to make sure that we pick the right moment.”

The tech sector has borne the brunt of a market sell-off since the start of the year, as investors digested the likelihood of a steep rate hiking cycle — which makes growth stocks’ future earnings less attractive.

Several executives and investors said rising inflation and interest rate hikes were making it harder for fintech firms to raise money.

“Within the investment community, the mood is very grim,” Iana Dimitrova, CEO of payment software firm 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 definitely moving much slower than they did a year ago,” she said. “They’re being more cautious.”

Funding squeeze

Prajit Nanu, co-founder and CEO of San Francisco-based payments company Nium, said he’s expecting “massive consolidation” in fintech.

“Companies which are not going to raise are going to either get consolidated or shut down,” he said.

The big fear is that fintech growth will slow along with the economy at large as soaring prices force consumers to tighten their purse string. Economists at the World Bank on Tuesday cut their forecast for global economic growth, warning of prolonged “stagflation” — a situation where 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 Covid lockdowns on people’s shopping habits. But — as worries around rising inflation and higher interest rates hit home — funding dropped 18% in the first quarter from the previous three months to $28.8 billion, according to data from CB Insights.

“There’s going to be more of a focus on unit economics versus just crazy growth,” Ricard Schaefer, partner at Target Global and an early investor in financial services app Revolut, told CNBC.

Stripe’s Collison had a simple piece of advice for fintech founders at the conference: tear up the 2021 investor pitch.

“They definitely can’t do the 2021 pitch,” he said. “It needs to be a new pitch, a 2022 pitch.”

Ken Serdons, chief commercial officer of Dutch payments firm Mollie, agreed. Fintechs seeking fresh funds now will need to present a “clear path to profitability,” he said.