WhiteSight

Fintech valuation dip – Correction or crash?

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Over the past year and a half, the fintech sector has witnessed a massive slowdown, marked by stagnant growth, reduced venture capital investment, and falling valuations. Factors such as rising interest rates, rising inflation, and economic uncertainty have posed significant challenges for the sector. From Q3 to Q4 2022, fintech deals saw a sharp 52% drop, exceeding the overall 27% decrease in the venture market. With fintech valuations currently below their historical averages, a swift revival seems unlikely. 

In this blog, we expand upon our analysis from last year, which focused on public market fintechs, to encompass the noticeable downward trend that has now also permeated private markets.

The great fintech adjustment

The private market underwent significant upheaval in Q4 2022, and those ripples have definitely spilled into the early part of 2023. Prominent European fintech players, including Klarna, Checkout.com, and N26, witnessed drastic valuation reductions. Klarna, once Europe’s highest-valued startup, endured an 85% valuation drop, falling from $45B to a mere $6.7B in 2022. Similarly, Checkout.com underwent a 73% decrease, settling at an internal valuation of $11B by December 2022. Even N26, one of Europe’s celebrated fintech firms, faced a potential 67% markdown from its earlier $9.2B valuation as major backer Allianz X contemplated a stake sale.

Stripe, Revolut, and Pine Labs also experienced significant falls in valuations with respect to their former peaks. Stripe’s valuation dipped to $50B, a 47% decline from its previous high, while Revolut’s value fell by 46%, and Pine Labs experienced a 38% reduction. 

Gravity’s grip on the public markets

For most fintechs in 2022, grander exits didn’t necessarily translate into greater gains, with public fintechs experiencing a staggering 72% drop in market value over the past year.

Nosedive: Over 75% Valuation Drop

Key players like Dave, Affirm, and Coinbase saw their stocks freefall over 70%. Dave, the banking app, experienced a shocking 98% drop in market cap from an initial $3B to a mere $60M. Crypto giant Coinbase had a tumultuous journey, with a steep 91% drop from an initial $86B valuation to just $8B. Affirm, the online lender, wasn’t spared either, recording a sharp 78% drop to $2.6B from its IPO valuation of $12B in 2021.

Deep-Dive: Sub-50% Valuation Drop

Fintech firms like SoFi, NuBank, and Wise have also been caught in the undertow, with their valuations falling by nearly half. SoFi saw its valuation drop by 48% to $4.5B from an impressive $8.7B. Brazilian digital bank NuBank witnessed a significant 42% decrease from a soaring $45B to a sobering $26B. Wise, after its record-setting London listing, saw a substantial 31% decline in valuation to $7.6B from an initial $11B in 2021. These figures highlight the uncertain tide public fintechs are currently navigating.

The valuation vortex across fintech sectors

Sweeping across the fintech landscape is a downturn that’s affecting BNPL providers, digital banks, payment processors, cross-border payment providers, and super app aspirants alike. 

BNPL providers like Klarna, Affirm, and Zip are feeling the impact of both increased regulation and competition from tech giants such as Apple. Digital banks, including Dave, SoFi, N26, and Varo Bank, are finding profitability an elusive goal amidst high-interest rates, reduced venture capital funding, and heightened regulatory scrutiny.

Payment processors are not immune, with companies like Stripe, SumUp, Pine Labs, and Checkout.com facing massive valuation drops as the surge in digital payments adoption from the pandemic era begins to normalise. Meanwhile, cross-border payment fintechs such as Wise, Remitly, and Chipper Cash are also facing difficulties due to equity market sell-offs. 

Finally, super app aspirants, including Grab, PayTM, and PayPal, are seeing their valuations tumble. Despite substantial funding and a diverse range of businesses, these companies have struggled with achieving product-market fit and favourable unit economics. Over-diversification and costly customer retention efforts have added to their challenges in attracting public market investors.

Is there a silver lining?

Despite the prevailing downtrend, emerging markets offer a beacon of hope for the sector. Indian payment companies PhonePe and RazorPay, along with Southeast Asia’s unicorn Akulaku, have seen impressive valuation growth, attributable to the booming adoption of fintech solutions in these developing regions.

Strategic setback or a tactical topple for fintechs?

As the fintech industry grapples with declining valuations, 2023 is expected to endure more layoffs, company shutdowns, and industry consolidation. 

While immediate impacts seem unsettling, it’s crucial to view these developments as a natural progression, as these painful times will herald the arrival of more sustainable and resilient business models. Traditional banks’ are expected to go into acquisition overdrives with fintechs available for a bargain which will also help the industry leapfrog to a digital future. 

This phase may feel like a setback, but it is merely the springboard for the next leap forward. May the bravest fintechs survive and thrive!

Authors

Senior Research Associate

Risav is a senior research associate at WhiteSight, where he spends his days navigating the complex fintech landscape and poring over market trends. When he's not decoding the world of fintech, you'll find this sports fanatic decoding the perfect curveball on the football field.

Senior Branding Associate

Kshitija is a senior branding associate at WhiteSight, crafting branding strategies and fintech content. When she's not conjuring up new ideas for the company, you can find her dabbling in new hobbies and documenting her experiences through writing and short films.

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