How strong companies can survive the “Fintech Winter”

‘Fintech winter’ is the recently coined term for this current era characterized by high inflation and rising interest rates, falling valuations and layoffs in the fintech sector.

Still, while the seasons don’t change overnight, warmer days are coming for many fintech companies, says Martin Hegelundco-founder and marketing manager i Ageras.

Hegelund is a serial entrepreneur with 15 years of experience working with digital media, SaaS and online marketplaces. His company Ageras has raised more than $100 million to fuel its rapid international growth.

Those with solid balance sheets and viable business models may survive the current downturn, while some startups – especially those whose valuations have fallen – will be attractive M&A targets.

A challenging year for fintech came to a close with non-stop headlines about the implosion of cryptocurrency exchanges FTX and disposable market maker Alameda Research and worries that these insolvent firms could drag much of the nascent crypto market down with them. As the new year begins, many will read the FTX stories as the latest sign that the fintech winter will be long and cold.

But the seasons change all the time. And promising technology developers will emerge stronger when this winter is over. Because behind the winter headlines stands a consumer whose preferences and expectations have changed. The consumer wants to be served by an economic system that is always on, digital, global, flexible and open 24 hours a day.

The developers who plan for this will still be standing when winter gives way to warmer days.

The deep freeze

It is difficult to put an exact number on layoffs in fintech companies or in the technology sector more generally, but some analysts are trying. But the problem is that the number continues to rise.

In fintech, the cutbacks in 2022 were notable, even when setting aside layoffs in the crypto space. Apart from managers who Credit Karma – which recently froze hiring – other companies have given workers pink slips, e.g bell, which cut the workforce by 12 percent, open door, which cut 18 percent of employees, Chargebee, which laid off 10 percent of employees and Stripe, which cut by 14 percent.

Even high-flyers like it Klarna announced its intention to cut staff as the ongoing bear market took a bite out of its valuation.

Major e-commerce players are dealing with a decline in business attributable to inflation and consumers recalling their fondness for shopping in brick-and-mortar stores.

Wayfair and Goal said its e-commerce business slowed considerably in 2022, while Amazon saw a four percent drop in online sales and cut tens of thousands of jobs. Shopifywhich flourished in the early days of Covid shutdowns, have experienced their own decline and made cuts in response.

And for privately owned fintech companies, the winter has been at least as bleak. Globally, venture funding for fintech startups fell to $12.9 billion in the third quarter of this year, down 38 percent from the previous quarter. Similarly, investments in technology financing fell to $8.5 billion in Q3, down 33 percent from Q2.

Since fintech startups tend to require a lot of money, you can expect to see more layoffs and potential shutdowns.

No matter what role you play in the sprawling fintech sector, it’s been a rough winter.

Looking forward

There are brighter days ahead for fintech developers, and that’s because businesses of all stripes, including banks, credit card issuers and retailers, will be under pressure to serve a consumer whose expectations and preferences have changed.

With a possible recession looming, consumers are currently trying not to spend money. But it is only a matter of time before this changes. If monetary tightening brings inflation under control, pressures will begin to ease. People will lend, borrow and spend again.

And when consumers are ready to spend again, they will want to do so with speed and flexibility previously unimaginable.

Suppose a business wants to sell goods or services to consumers when the downturn ends. If so, it must explore embedded financial systems, connected accounting software and technologies that help them accept new payment methods.

PricewaterhouseCoopers estimates that the volume of cashless payments will reach $1.9 trillion by 2025. By 2030, analysts say that cashless payment volumes will triple from what they were in 2020. And as cashless payments grow, the need for alternative payment methods will increase.

In addition, next year financial institutions will likely look to expand their presence in emerging online economies, including those serving online influencers, gamblers and market speculators. Working with fintech startups is the way for banks and payment companies to do it.

New class

All of this is to say that no matter what happens to the markets, the valuation of fintech companies, or the number of employees of the leading fintech companies, the demand that has always driven new financial innovations is not weakening. On the contrary, even with a decline in corporate earnings and household finances on the ropes, demand is growing.

Finding ways to give consumers and businesses what they want – how they want it – will be key to surviving the “fintech winter”. Then, when spring comes, there will be a new class of winners.