Fintech’s uneven new reality has helped some startups, harmed others

Fintech startups were hot news before the COVID-19 era, but the pandemic hasn’t bumped the sector out of the headlines.

Companies that were pitching optimistic news a few weeks ago are now cutting staff. Others are facing a surge of users trying to find their financial footing in the face of uncertainty. Some fintech shops are sharing data by the heap, while others refuse to disburse even a morsel. 

And what about all those credit card startups?

As a startup category, fintech is in a complex spot as the global markets shed value. Small businesses hampered by shelter-in-place orders are scrambling for alternate capital sources and individuals are eager to secure their financial health.

It’s a time of utmost use — or uselessness — for fintech solutions.

To make sense of all the changes, we dug our teeth into several news stories. We also collected and peppered in fresh data from a host of startups in the space and mixed in commentary from investor Kyle Lui of DCM, a venture firm that invested in the recent (and successful) fintech IPO of Bill.com.

So here’s a brief, contentedly complete look at the world of fintech. We’ll start with who we know is struggling, move on to companies that are either quiet or unclear in their recent performance and we’ll close with some companies that are performing well in the odd world we find ourselves in.

Who is struggling?

The snap from rapid growth and layoffs was rapid for many players in the space. A number of firms that we’ve covered recently have rapidly seen their fortunes change.

Digital bank company Monzo has enacted voluntary furloughs for a number of staff and its CEO has forgone his salary for the next 12 months. Monzo raised £85 million in 2018 and £113 million in 2019, doubling its valuation to £2 billion in the process. As recently as mid-March, the neobank was still rolling out new features. Then it lost its CTO right before the furloughs.

But Monzo is not alone; corporate travel company TripActions laid off hundreds due to coronavirus travel restrictions. This layoff comes just a month after the Palo Alto unicorn secured a $500 million credit facility for its corporate travel credit card product launch. 

Other well-known names are running into issues. In late March, small business loan platform Kabbage furloughed a significant number of staff and shut down its Bangalore office. This was a week after it announced a new product and even doled out an initiative to help consumers buy gift certificates for small businesses. (Kabbage is still very active, mind, emailing TechCrunch this morning with news of its participation with a bank to help with Paycheck Protection Program loans during the pandemic.)

Austerity can take many forms — some companies merely freeze hires and let attrition reduce headcount over time. Other organizations will simply clam up, saying and announcing nothing. During our outreach for this piece, we ran into a number of companies that simply didn’t want to answer questions; somewhat understandable in a turbulent market, but not exactly a bullish signal given that many of these companies were happy to chat a few weeks ago.

Who is quiet? 

Some fintech companies saw revenue decline sharply, while a handful (as we’ll see shortly) saw a boom in demand. Others are more in the middle, we reckon. 

As millions stay at home, there’s no world in which payment processing companies are facing highs right now, for example. We wanted to know precisely what was going on with the payment startups that we can name off-hand, but answers were a bit spare.

Outreach to Toast, a company that raised $400 million in February of this year, went unanswered. Toast provides POS services to restaurants, many of which are now closed or operating in a reduced fashion. Toast hasn’t executed known layoffs, but there are some indications that not all is well; a public dashboard tracking industry layoffs has Toast pegged as freezing hiring along with several reports of cuts. 

Toast didn’t respond to a request for comment about what its data might show about its market, but just before we published this story, it enacted sweeping layoffs. Recall that today we’re marking a moment in time; we may survey the space again next week if this pace of change persists.

On a similar point, TechCrunch reached out to payments tech provider Finix and corporate credit providers Brex and Ramp, but these companies did not provide specific numbers on payment volumes.  

Finix shared the following statement: “We generally don’t share our numbers specifically so people can’t back out the performance of our customers. We felt comfortable sharing a year-on-year growth rate, which we felt indicated Finix’s ability to attract new customers. Sharing a monthly growth rate would rather indicate our aggregated customer growth (or decline) rate and we are choosing not to share those numbers right now.”

Ramp’s CEO Eric Glyman said some customers are spending more on its cards, while some are spending less. A question about new signups for its service went unanswered. (TechCrunch wrote about Ramp here most recently.)

While we can’t assume specifics from silence, fintech is hardly a quiet industry. And it’s safe to say that volume can’t be higher than it was before we were all under lockdowns. As Brex’s CEO Henrique Dubugras said on a conference call Tuesday morning, “no one is growing right now.” 

The lumpy impact of the economic downturn is not surprising to some. DCM’s Lui told TechCrunch that “fintech has been impacted pretty unevenly, if you look at anything where you’re doing business with a small business or offline it has been tough.” 

The negative impacts, however, won’t last forever. Lui pointed to Cherry, which lets people buy offline purchases through payment installments, as an example of a company that is struggling now, but won’t once life resumes to normal.

“Once things pick back up, there will be even more of a need for a solution to provide financing for larger ticket items,” he said. “Longer term, we’re still bullish.”

And who is surging?

Unemployment and the economic downturn means that people are looking for alternate ways to pay off debt, or in some cases, double down on current investments. Financial health is on everyone’s minds right now, so while fintech companies that wagered on people spending money are struggling, those focused on helping people save money are surging. 

It is not hard to find examples of savings-focused fintech companies doing well. Square, after sharing a positive earnings forecast in February, has confirmed it still plans to open up a physical bank location in Utah in 2021

Investing app Public told TechCrunch that, since the market downturn began, it has seen investment activity increase by more than 300%. 

Sofi, according to Lui, is seeing a “three or four times increase in terms of demands of student loan financing.” 

When it comes to surges on loan and financing apps, a broader issue emerges: what about the quality of those loans? Expect to see underwriting standards (the metrics your lender can use to verify that you’ll be able to pay back that loan) get harsher as time goes on. Not everyone will be accepted for a loan, and for neobanks and startups that claim to be more accepting, that might completely undermine their business propositions. 

But the good news rolls on. M1 Finance, a consumer fintech service that includes savings and investing functions and recently reached the $1 billion AUM mark, provided a grip of data to TechCrunch showing recent growth. Signups had surged by over 60%, while net deposits were up nearly 30% at the Chicago-based company.

Another outlier? Acorns. The company saw a then-record 9,800 new signups on March 19, the same day that the company noted the stock market “recorded their second-worst day of trading since 1987.” So, folks are turning to saving and investing products as the stock market collapses. Perhaps surprising, but here we are. Acorns told TechCrunch that it has crossed the 7 million signup mark and is seeing a large lift in organic signups. That’s good for any company, especially if it wants to save cash on customer acquisition costs. 

“Every downturn in history has ended in an upturn,” Acorns CEO Noah Kerner told TechCrunch, helping to explain why folks may be piling into Acorns as the market churns; the startup offers investing tools along with traditional savings functions.

So the fintech landscape right now is part misery, part mystery and part party. The nuance comes depending on where you sit on the scale, but for newcomers, that might mean taking a few deep breaths before deciding to join the boom of neobanks and credit cards.