In Fintech, 2022 is about to become the year of layoffs

If 2021 was the year of abundant venture capital and inflated valuations in fintech, 2022 is shaping up to be the year of downsizing, with cuts ranging from dramatic and very public layoffs to unannounced layoffs.

Rising interest rates, concerns about an impending recession and a precipitous decline in venture capital have prompted fintech entrepreneurs to aggressively cut spending. Beyond the big companies that have announced layoffs like Robinhood, Klarna and Coinbase, every corner of the fintech industry is feeling the pressure, from investment apps and digital youth banks to back-end trading software and insurtech outfits.

Many are cutting staff to save money and stay alive, as VCs tell founders they need at least two years of “runway” to weather a prolonged downturn. Other startups change their strategy, and they opportunistically shed workers in some departments while hiring in others. It allows them to get closer to profitability and gives them a chance to avoid a dreaded “down round”, where they raise money at a lower valuation than their previous funding round. Buy now, pay later giant Klarna recently raised $6.7 billion in funding, down 85% from a year ago.

All fintech companies seem to be a candidate for layoffs. “If you haven’t done it, you have to,” says one fintech executive who cut staff earlier this year. Stephanie Choo, a general partner at fintech-focused VC firm Portage, says, “Almost every centric company I know of is either making layoffs or moving.” Five members of Forbes’ The Fintech 50 list, which was released at the beginning of June, appears to be reducing the number of employees.

Through LinkedIn surveys and speaking directly with companies and industry insiders, Forbes identified nine fintech companies that have apparently shrunk their workforce recently without any announcement or public reporting of the downsizing. Of the nine, iTrustCapital, Stash and Synctera confirmed the staff cuts Forbes. GoodLeap confirmed a small number of cuts in its mortgage business, but said it is actively hiring and expects headcount to grow 16% this year. Five others cCompanies we identified as having previously unreported employee downsizing — Clearco, DriveWealth, M1, PointCard and Step — did not respond to our requests for comment. Some unconfirmed reductions may be due to attrition rather than layoffs, but LinkedIn data typically underestimates number of dismissed employees.

PPersonal Finance startups and digital banks are among the hardest hit so far. In late June, investment app Stash laid off 8% of its staff, according to a spokesperson, or an estimated 40 people. The cuts centered around Stash’s brand marketing team. Digital bank Albert in Los Angeles had a total of 300 employees this spring, but two months ago it “reduced the size of our workforce in order to operate efficiently and grow sustainably,” a spokesperson said. Forbes. At least 20 of Albert’s workers were let go, according to a media report. Varo, a digital bank in San Francisco that spent $100 million to get a banking charter, laid off 10% of its staff, or 75 people, earlier this month.

LinkedIn data reveals that other digital banks have made big cuts. Chicago-based M1, which allows customers to invest, use debit cards and borrow money, has seen its headcount drop from 369 people in June to 349 today. Teenager-focused neobank Step went from a peak of 152 in March to 135 today. Rewards-based debit card start-up PointCard has gone from 105 employees in January to 61. Earlier this week, PointCard announced that it is discontinuing its first product, the Neon debit card. Work is still underway to build a “consumption platform for the next generation of high consumers”, according to a blog post. PointCard, M1 and Step did not respond Forbes’ request for comment.

Beyond consumer-facing digital banks, back-end technology providers have been shrinking the ranks. New Jersey-based DriveWealth, whose technology is used by Cash App to let customers buy “fractional shares” or as little as $1 worth of stock, has seen its employee base drop from 298 to 292 over the past month, according to LinkedIn. DriveWealth did not respond to multiple requests for comment.

Synctera, a banking-as-a-service software startup that helps other fintechs launch banking capabilities, has 112 employees today, compared to 129 in February. “At the beginning of Q1, we restructured select teams to better align with current business and growth goals,” a spokesperson said. During the first week of May, Vise, a New York startup that uses artificial intelligence to create stock portfolios for investment advisers, laid off 20% of its staff, or about 20 people. Vise has switched to a smaller sales team, CEO Samir Vasavada said Forbes in an email.

Clearco, a Toronto fintech that funds e-commerce companies through revenue-sharing deals, saw its LinkedIn headcount drop from 618 in May to 582 today. A spokesperson declined to comment. GoodLeap, a company valued at $12 billion last year that lends money to consumers for green home improvements, recently laid off 30 people, about 2% of its workforce. Spokesperson Jesse Comart says the company plans to increase its employee base significantly this year. “GoodLeap is profitable, debt-free and extremely healthy,” he adds.

Signs of layoffs often don’t show up on LinkedIn for weeks, as employees aren’t inclined to remove a company from their profile—and basically announce they’ve lost their job—immediately after being let go and before they’ve found another position . And LinkedIn’s numbers typically underestimate the extent of the cuts, especially in the short term. For example, identity verification company Socure laid off 69 employees in mid-June, and LinkedIn shows a drop of just 20 people from May to June. Stash laid off about 40 people a month ago, but LinkedIn currently reflects a drop of just eight employees from June to July.

With bitcoin’s price down 50% this year and some digital asset lenders going bankrupt, crypto companies have been among the hardest hit. In addition to much larger companies like Coinbase, OpenSea, Gemini and Blockchain.com that have laid off many workers, crypto retirement account company iTrustCapital let go of 15 people, or 15% of its staff, a couple of weeks ago. “The latest layoffs eliminated redundancies in business functions that were caused by current market conditions and a shift in growth plans,” a spokesperson said.

Unsurprisingly, some fintechs involved in home buying — caught off guard by rising interest rates — say workers. A week ago, FlyHomes, a platform that allows users to buy and sell homes, cut 20% of its workforce, or an estimated 200 employees.

But the insurance companies have also had cuts. Life insurer Ethos and small business insurer Next recently cut staff, with Next letting go 17% of its workforce, likely more than 150 people.

Some of the largest private fintech companies have avoided cuts so far. Spokespeople for Stripe, Chime, Plaid and Ramp said they have not laid off and have no plans to. Brex declined to comment, but LinkedIn data shows that the number of employees is growing steadily.