Strategy Note /
Global

Fintech jobs cuts are up 7x on last year – here's why

  • While redundancies at tech leaders like Amazon, Meta and Twitter grab the headlines, fintechs are also shedding staff

  • Reduced funding access is pushing down valuations, forcing firms to cut cash burn and shorten the path to profitability

  • Emerging market fintechs are not immune from these trends though early-stage deals have yet to fully re-price

Fintech jobs cuts are up 7x on last year – here's why
Rahul Shah
Rahul Shah

Head of Financials Equity Research

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Tellimer Research
17 November 2022
Published byTellimer Research

In recent weeks Amazon and Meta have announced sizeable cuts to their workforces. For these profitable firms, the key driver is the economic downturn, which is putting pressure on advertising revenues and reducing appetite for the firms’ services. For Twitter, a change in ownership is driving a strategic rethink.

Although attracting less attention, US fintechs have also been shedding staff; layoffs are running at 7x last year’s level, an acceleration we had flagged earlier in the year. Key drivers include the challenging macro environment (weaker demand, higher interest rates) and tougher funding conditions; we highlight here the most affected fintech business models. Emerging market fintechs are not immune from these trends, but have been somewhat sheltered by typically less elevated valuations, and because the full impact of valuation compression on early-stage funding rounds is still to be felt. The coming shakeout is likely to drive a pick-up in M&A activity, and a greater focus on returns versus growth. China’s fintechs are already leading the way in this regard.

Fintech job losses have increased markedly in 2022

In the US, fintech job losses this year are 7x the run rate of the 2019-2021 period, mirroring broader tech trends. We suspect the picture in other geographies is similar.

US fintech job losses are up 7x versus 2019-2021

High inflation is eating into individuals’ discretionary spending power, and reducing their appetite for payments, savings or investment products, while high interest rates are reducing the affordability of credit products. We highlight below the fintech business models most likely to be affected by these headwinds.  

Fintech scorecard: product sensitivities to macro headwinds

 

The funding environment has deteriorated markedly

The valuation of private firms has declined markedly since last year, driven by higher funding costs and a withdrawal of liquidity from the financial  system, allied to tougher growth environment for such firms. The Refinitiv Venture Capital Index, which seeks to replicate the valuation performance of US venture capital-funded firms via listed equities, has declined by around 60% since its November 2021 peak (the previous big downturn, in the early 2000s, was around 70%).

US VC investee firm valuations are 60% off their peak

Global venture funding value was US$74.5bn in Q3 22, according to CB Insights, down from a peak of US$178bn in Q4 21. Focusing on the fintech sector, we see that global funding volumes have declined by around two-thirds since they peaked at the end of last year.

Global venture funding fell 55% yoy in Q3 22

We think the drop in emerging markets may be less pronounced, partly because valuations were not as universally frothy, and also because early-stage funding rounds have yet to factor in the much more challenging IPO market conditions that are driving down the prices of later-stage firms.

Fintechs will need to conserve internal resources

More difficult funding access, allied to the more challenging operating environment, means most fintechs will need to adjust their approach. Appropriate actions could include the following:

  • A switch in strategic focus from growth to profitability. For example, reining in ambitions to expand into new geographies, and instead optimising the pricing and risk profile of the existing products.

  • Lowering customer acquisition costs and lifting the lifetime value of the customer relationship. For example, through partnerships.

  • Shifting the emphasis of the business. For example, away from cyclical and/ or resource-heavy products like consumer credit towards payments and savings.

  • Becoming more open-minded towards M&A/ investment from competitors – not everyone can become #1.