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Fintech: investors are taking fewer risks

Published on June 03, 2022 - 3 mins reading time
VSE/SME Fintechs Startup/innovation International Monetary Fund

Since the beginning of the year, investors have been taking fewer risks. They are more cautious and less attracted to fintechs. Fintechs are finding it harder to raise funds, and their valuations are falling. As for listed fintechs, they are suffering the consequences of an uncertain economic context and are performing poorly on the stock market.

Valuations and fundraising revised downwards for fintechs

For several months now, many fintechs have been seeing investors pull back and become increasingly cautious in a certain economic climate marked by inflation, rising rates, slowing growth and the war in Ukraine.

In the payments sector, the share price of US listed fintech Affirm was halved in the space of 3 months. Swedish fintech Klarna, valued at $45.6 billion at the beginning of the year, was forced to postpone its IPO. The company is experiencing difficulties in raising funds and could see its valuation fall to $30 billion. It has also decided to lay off 10% of its workforce.

Payment fintechs are not the only ones to suffer the consequences of investor caution. For example, the valuation of Brazilian neobank Nubank, which is due to go public in December 2021, has plummeted and been divided by 3 in just a few months.

Rising interest rates and the mistrust of financial authorities

Since the beginning of the year, fundraising has been lower. Financing in the fintech sector fell by 18% worldwide in Q1 2022 compared with Q4 2021, according to data from CB Insights.

In total, fintechs raised $29 billion in funds in Q1 2022, and forecasts are even more alarming for Q2, with an estimated $21 billion.

Fintechs seem to be suffering the same fate as the tech sector, which has lost billions of dollars in capitalization since the beginning of the year. Rising interest rates have put an end to the risk appetite of investors, who were previously encouraged by near-zero interest rates to finance start-ups that were barely profitable or even loss-making.

In addition to rising interest rates and slowing growth, the financial authorities' growing mistrust of neo-banks also explains investors' caution. Just recently, the IMF called for " stricter rules " to combat financial crime.

However, this lack of interest in fintechs on the part of traditional investors could make room for new players, starting with banks, for whom certain operations are likely to become more accessible.