Fintech companies lose half a billion dollars on the stock market

They were going to be the market revolution. After the pandemic, those we call fintechcompanies dedicated to providing financial services through technology were the future.

At least that is how they were perceived by many investors who predicted the end of cash and credit cards in favor of immediate payment via devices such as cell phones, tattoos or chips inserted under the skin.

And not only that. Customers would have the one-click access to loans and investment instruments without going through the cumbersome bureaucracy of traditional banking entities.

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All fast, immediate and without the need for collateral thanks to the fundamentals of decentralized finance: money travels at the speed of light.

In recent months, however, that future has become twisted. The Fed’s decision to raise interest rates and soaring inflation have forced consumers to think twice about dipping into their pockets and investors to peg into safe-haven assets such as gold.

Consequently, the fintechwhose business model depends precisely on the commissions they earn every time a move occurs, have lost much of their appeal amid this frozen economy.

This is confirmed today the Financial Times. According to data collected in this way from the consulting firm CB Insights, in recent months the fintech have lost about half trillion dollar stock market valuation.

Specifically, the report explains, since 2020, more than 30 fintech companies have gone public in the United States. They all did so convinced that their proposals for the digitization of finance would attract a large number of investors. Many were right, but now the party is over.

While it is true that the context is negative for almost everyone and that the Nasdaq itself has fallen almost 30% in recent months, the fact remains that on average it calculates the FTshares of fintech companies recently listed on Wall Street have lost about half their value.

Thus, its accumulated market capitalization in 2022 fell by $156,000 million. If you measure each stock from its all-time high, about $460 billion was lost.

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These characters have first and last names. For example, online lending company Upstart, which boasts of using AI to make consumer lending decisions, blames “a tumultuous economy” for falling revenue and rising debt.

PayPal and Block, formerly known as Square, between them have lost nearly $300 billion in market capitalization this year.

The lack of confidence in fintech has also rubbed off on those who resisted the temptation to go public.

Klarna, an online financial services company, saw its valuation fall from $46 billion to less than $7 billion in its last funding round.

Dan Dolev, an analyst at the Mizuho firm, explains to FT that which rises quickly falls in the same way.

“The ace fintech they were the first tech companies to benefit greatly from covid as everyone was stuck at home buying things online. Now they are correcting excessively lower before other sectors as well,” explains the expert.

Dolev added, on the other hand, that expect to see some upside many of these companies in the second half, with year-over-year comparisons improving a bit.

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To do so, a few will also have to deal with pressure from regulators.

The SEC, the American equivalent of the CNMV, the stock exchange regulator, is examining the alleged conflicts of interest of the online broker Robinhood.

Additionally, SEC Chairman Gary Gensler has called for clearer oversight of cryptocurrency markets.

The Consumer Financial Protection Bureau in the United States is continuing its investigations, which began last December, into a good handful of companies whose business model is based on the “buy now, pay later” approach to prevent consumer abuse. .

With that on the table, everything points to the moment of truth coming for the fintech. Either they are the future that many continue to believe in them, or on the contrary they will fall one after the other like a fragile house of cards. The next few months will serve to remove doubt.

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