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Fintechs postpones IPO plans, focuses on profitability in the midst of recession fears

Investments in fintech are declining as concerns about rising inflation and the prospect of higher interest rates have weakened economic sentiment.

Elena Noviello | Moments | Getty pictures

AMSTERDAM – Financial technology companies put IPO plans on hold and cut spending as fears of an impending recession lead to a shift in how investors view the market.

At the Money 20/20 conference in Amsterdam, executives of major fintech players sounded the alarm about the impact of a deteriorating macroeconomic climate on fundraising and valuations.

John Collison, co-founder and president of Stripe, said he was unsure whether the company could justify the $ 95 billion valuation given the current economic environment.

“The honest answer is, I do not know,”[ads1]; Collison said on stage Tuesday. Stripe obtained venture capital financing last year and is currently not looking to raise again, he added.

It comes as a buy now, pay later firm Klarna is reportedly looking to raise new funds for a 30% discount on the valuation of 46 billion dollars, while the rival group Affirm has lost about two thirds of the market value since the beginning of 2022.

IPO delays

Zopa, a digital bank based in the UK, had hoped to be listed by the end of 2022. But this looks less likely as inflation shock exacerbated by the war in Ukraine has led to a decline in both public and private markets.

“The markets need to be there” for Zopa to be listed, CEO Jaidev Jardana told CNBC. “The markets are not there – not too fine, not for technology.”

“We just have to wait and see when the markets are in the right place,” he added. “You only want to make a stock exchange listing once, so we want to make sure we choose the right moment.”

The technology sector has carried the bulk of market sales since the beginning of the year, as investors digested the likelihood of a steep rise in interest rates – making future earnings of growth stocks less attractive.

Several managers and investors said that rising inflation and interest rate increases made it more difficult for fintech companies to raise money.

“Within the investment community, the mood is very gloomy,” Iana Dimitrova, CEO of payment software company OpenPayd, told CNBC.

OpenPayd is in the process of raising funds, but it is unclear when the company will be able to complete the round, Dimitrova said.

“People are definitely moving much slower now than they did a year ago,” she said. – They are more careful.

Financing squeeze

Prajit Nanu, co-founder and CEO of the San Francisco-based payment company Nium, said he expects “massive consolidation” in fintech.

“Companies that are not going to increase will either be consolidated or closed down,” he said.

The big fear is that fintech growth will slow down along with the rest of the economy, as high prices are forcing consumers to tighten their bags. Economists at the World Bank on Tuesday cut the forecast for global economic growth, and warned of long-term “stagflation” – a situation where inflation remains high, but growth stops.

Investment in the fintech sector flourished last year, reaching a record high of $ 132 billion globally – largely thanks to the effects of Covid locking on people’s shopping habits. But – as concerns about rising inflation and higher interest rates subsided – funding fell 18% in the first quarter from the previous three months to $ 28.8 billion, according to data from CB Insights.

“There’s going to be more focus on unit economy versus just crazy growth,” Ricardo Schaefer, a partner at Target Global and an early investor in the financial services app Revolut, told CNBC.

Stripes Collison had a simple piece of advice for fintech entrepreneurs at the conference: tear up the investor pitch for 2021.

“They definitely can not make the 2021 pitch,” he said. “It has to be a new pitch, a 2022 pitch.”

Ken Serdons, commercial director of the Dutch payment company Mollie, agreed. Fintechs seeking new funding now must present a “clear path to profitability,” he said.

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