At the start of the 2010s, experts were asking if Europe would ever produce a tech company with a billion-dollar valuation. As we enter 2023, the European tech ecosystem has produced nearly 150 unicorns, an incredible success rate that has been spearheaded by fintech success stories like Revolut, Checkout.com, and Adyen. For more than a decade, fintech has been the jewel in the crown of European tech.
However, after ten years of monumental growth, fintech is weathering its first major storm. Having already been battered by the tech downturn, layoffs, the cost of living crisis, and a looming recession, the news from the Wall Street Journal that fintech companies underperformed both financial stocks and tech stocks in 2022 is depressing, if unsurprising, reading.
Vulnerability to higher interest rates, the disappearance of pandemic catalysts, and more of a focus on businesses that are profitable or have a clear road to profitability are all mentioned as causes for the poor performance of fintech stocks. These are all valid arguments that certainly aren’t unique to fintech, but are hitting the sector particularly hard.
14.5 Million Tickets a Day
But don’t believe everything you read. The phrase, ‘the higher you climb, the harder you fall’, springs to mind and there seems to be a long line of industry experts desperate to declare the end of the era of fintech innovation. It’s curious that journalists in a country where 14.5 million tickets are still written every day are so quick to dismiss fintech innovation.
The truth is that fintech has already transformed business and personal finance for millions around the world. As well as innovations that have improved legacy systems in banks and B2B technologies that have increased security, privacy, and risks for consumers, think about the millions of people with Revolut or Monzo cards in their wallets. Or perhaps the companies that have survived thanks to SME finance platforms, or the traders using digital payment devices. And that’s just in Europe - fintech is having an even greater impact in emerging markets through online money transfers, micro-loans, and mobile payments.
To suggest that fintech is about to come crashing down is to ignore the scale of the digital transformation that has already taken place across the global financial industry.
In fact, despite economic turbulence, despite short-term setbacks and despite market correction - fintechs will continue to attract massive venture funding in 2023, and rightly so. There is plenty of dry powder that investors need to deploy, and fintech innovations remain a strong bet.
Cheques vs. Checks
Many financial services are still archaic - look again at our cheque, or rather should I say check-writing friends across the Atlantic - and traditional practices such as manual compliance and risk processes that are ripe for disruption. Now, more than ever, every dollar counts. Today, fintech companies can add tremendous value in making companies' finance back-office functions better and run a healthier business.
The current economic landscape will make it harder for fintech entrepreneurs to raise capital unless they can demonstrate traction. At the same time, crises breed opportunity. At Antler, we received a record number of applications from aspiring founders last year and we backed fintech startups that were specifically addressing challenges created by the cost of living crisis and strong indicators that a recession is imminent. Entrepreneurs are using technology to help consumers pay their debts more efficiently, get their mortgages approved faster, and gain access to BNPL services to manage their personal and/ or business finances.
Remember the words of Warren Buffet: “The most common cause of low prices is pessimism - sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment. Not because we like pessimism, but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.”
Fintech stocks might be falling, but that doesn’t mean there aren’t significant opportunities for the right business. As a VC investor, we are always looking for outliers. Outliers who can succeed in challenging economic conditions, ones that are creating businesses destined for long-term growth and scale.