Pound, Euro Instability signals stress for FinTechs
How a currency trades on the world stage is a form of shorthand for how traders and investors view the prospects and dangers facing various nations.
And in Europe, the status of the British pound and the euro signal turbulence ahead for several sectors in the region – including the FinTech sector.
After all, access to capital is important for all kinds of nascent firms as they seek to launch or expand the reach of financial services innovations.
For the venture capital and joint stock companies that finance FinTechs, the pressure is on – and will be. The capital that is usually extended by banks and by investors until the institutional investors in turn make their way to the FinTech coffers will be harder to come by and will certainly be more expensive.
Record lows and volatility for currencies
At the time of writing, the British pound has reversed to an all-time low against the US dollar, and the euro is at about a 20-year low against the dollar. Currency markets have been rattled by news in recent days that the UK government will embrace a huge round of tax cuts, which will in turn be paid for by government borrowing, raising concerns over inflation and higher long-term debt. run.
And as the Bank of England looks set to push through a significant emergency rate hike to help boost the currency (and its attractiveness to yield-seeking investors), borrowing is becoming more expensive.
No surprise then, as KPMG has estimated, UK FinTech investment in the first of 2022 fell 65% year-on-year to $9.6 billion.
As loans and financing become more expensive, we could see even more pressure on the pace of private equity investment, meaning fewer companies will get the “oxygen” they need to take the leap to start businesses or grow them.
The ripple effects will be far-reaching. For FinTechs founders, it ends up shutting down various exit strategies – such as the hopes/dreams of listing on public markets, which could cash in on the sweat equity built up over the years (and also reward early institutional investors).
But even that strategy offers no real reward in the current environment. If we use our FinTech IPO stock index as a litmus test, investor sentiment is overwhelmingly negative. Each of these holdings trades as a “busted” IPO – i.e. below the offering price – with the exception of Bill.com Holdings (which is in the triple digits).
No easy times ahead, and the age of easy money is well behind us.
New PYMNTS study: How consumers use digital banks
A PYMNTS survey of 2,124 US consumers shows that while two-thirds of consumers have used FinTechs for some aspect of banking, only 9.3% call them their primary bank.
