If recession is on the rise, fintech didn’t get the message
If financial doom is underway, the fintech market showed little or no sign of it at the Money 20/20 conference in Las Vegas last week.
Although funding has dried up this year with a murky macroeconomic backdrop for the capital markets making it harder to raise money and close deals, fintech startups pushed new ideas and ambitious growth plans at October’s popular industry confab — and very few attendees mentioned plans to scale back activity.
Last year, the fintech sector raised a whopping $121.6 billion, a 153% year-over-year increase in the volume of global venture capital deals, according to data from Pitchbook.
Although this year saw only a fraction of that number — about $29.3 billion across 1,233 deals in the first quarter and $21.1 billion across 1,227 deals in the second quarter — the numbers are still historically high. In all of 2020, for example, fintech companies raised $47.9 billion, about $2.5 billion less than the total in the first half of 2022.
The decline in capital flows across venture capital is the result of the Federal Reserve’s rate hike path this year to curb inflation, with rising interest rates making higher-risk speculative asset classes like VC less attractive from a risk-return perspective.
US central bank officials have raised interest rates to a range of 3% to 3.25% this year so far, and another 0.75% increase is expected on Wednesday. This marks a major shift for companies that have benefited from the era of easy money in recent years, which led to a period of tremendous growth and paved the way for high investment and prolific deal-making.
Senior banker Jackie Reses told a panel that interest rates are likely to continue to rise, meaning the expensive-to-loan environment could be the “new normal” over the next decade.
Still, Reses called the current market “incredibly helpful for companies” that have shown more “constraints in operating their businesses” — something she said companies lacked in 2021.
“When people throw money at you, you end up being very sloppy in the way you operate,” Reses said. “I think what this market will do for people is drive you to make really brutal decisions where the focus really matters, so you can look ahead and get through this environment.”
Although some speakers acknowledged that the flow of money has receded, few seemed concerned about an outright slowdown or potential problems for the fintech market amid the wider economic downturn. Companies showed off new ideas, handed out branded swag, and even discussed hiring plans, while much of Corporate America has scaled back on recruiting fresh talent to curb costs.
Among the active fintech firms was Marqeta, a company specializing in payment services, which announced at the conference the launch of a group of new banking products to complement its card issuing business.
“Every company wants to become a financial services company,” Marqeta founder and outgoing CEO Jason Gardner told Yahoo Finance in a sit-down interview, adding that Marqeta has continued to hire to scale its growth plans, even as a route of across the technology market decreased. valuation from $16 billion after the IPO last year to under $5 billion. Gardner announced in a conference call earlier this year that he is stepping down as CEO, but that he will remain as chairman and also continue to serve as CEO until a replacement is found.
Other expansion announcements at Money 20/20 came from Anchorage, the digital asset platform backed by names including Andreessen Horowitz, Goldman Sachs and KKR. The platform rolled out an offering that facilitates crypto payment gateways, structured financial products and crypto investment. Global payments platform Veem also announced the launch of real-time payments in more than 100 countries.
So while much of Corporate America is focused on adjusting to macroeconomic headwinds by cutting costs, cutting hiring and tempering investor expectations, none of these topics seemed to be of much concern among fintechs on the Money 20/20 stage.
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Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
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