Are the Fintech Layoffs A Sign of Market Correction?

Cryptocurrency is based on blockchain, and how it is applied is closely related to various financial technologies. A recent survey by Fazzaco on the crypto industry layoffs indicates that the piercing wind is not just making crypto firms feel cold, but also fintechs, the shadow behind cryptocurrencies. Of course, not every workforce reduction happened among fintechs is a result attributed to the crypto downturn. In this article, we will review the most recent fintech layoffs that happened around the world, and try to take a glimpse at the reasons behind these events.

Feel like flying? Maybe you are freefalling

Fintechs appear to be amassing cash in recent years, with record valuations, ambitious hiring, and progressive expansion plans. 2021 was indeed a tremendous year with VC-backed fintechs raising 22.8 billion US Dollars in the first quarter. According to a recent article by Fazzaco​ last month, even with a fall of 18% from the fourth quarter of 2021, the total amount raised up until March 2022 was as high as 28.8 billion USD.

Even with such an impression as a major fund magnet, several fintechs, however, are currently putting on a "show" with hiring slowing-down, freezing, and even mass-firing. This time, it appears to be taking place in the middle of an ongoing financial crisis on a worldwide scale.

List of fintech layoffs - A Fazzaco's log

In late May 2022, Swedish payments company Klarna announced to lay off about 10% of its 7,000 employees​, claiming it was a result of the rampant inflation and the war in Ukraine.

It was late May again, and also a payment firm, Bolt, a check-out payments start set out plans to sack a third of its workforce​, amounting to 250 people. In a letter to all staff, the CEO wrote "It's no secret that the market conditions across our industry and the tech sector are changing, and against the macro challenges, we've been taking measures to adapt our business."

In June, Wealthsimple, a Canada-based digital wealth platform, announced to let go of 159 of its 1262 staffers, a 13% layoff, and the fintech blamed it on "market volatility".

In late June, the digital banking technology provider Amount, which provides retail banking and point-of-sale technology to clients including Banco Popular, HSBC, Regions Bank and TD Bank, announced to trim its workforce by 18%​.

Response from fintechs and affected employees

Entrepreneurs and investors are getting ready for what appears to be a downturn in the economy, possibly even a recession. Many fintech startups issued warnings, saying that the downturn will probably have an especially negative impact on hardtech, foreign businesses, and businesses with a lot of assets and poor margins.

Not just startups in their early stages are suffering. In the midst of cost-cutting pressure, rising inflation, an impending bear market, and rising interest rates, major IT companies, including Meta, recently announced hiring freezes or layoffs.

A user commented on the topic, saying "no company is lay-off safe. You need to make yourself lay-off safe. Get some seniority and work hard to make yourself irreplaceable. Or at least a strong contributor."

Is this a fintech bubble or a market correction?

Compared to the dotcom bust of the late 1990s, where there were thousands of startups with business models that didn't make sense and weren't making any money. The resulting shake-out was healthy for the long-term development of the sector by creating a more balanced environment, and the same is likely here too.

Another advantage of this correction, meanwhile, is that salaries are likely to fall back to realistic levels.

But today's uncertain times mean there will be a shift away from startups towards more stable, well-established businesses, particularly in the wider financial services sector.

Although this year and most likely the year ahead will be difficult, the pro-market correction people believe that the fintech market will pick up in 2024, because the correction itself is positive for the entire ecosystem.