Credit: stevepb
The fintech market has been marked for success. The high demand for digital payment services is expected to propel the market above all challenges while the emergence of technologies like AI and data analytics is seen to increase the industry’s growth even further. In fact, a report by The Brainy Insights anticipates the global market to climb from $115.34 billion in 2021 to $936.51 billion by 2030 at an impressive annual growth rate of 26.2%. Remarkable numbers indeed. So, how come fintech companies are currently struggling?
The latest Stripe news is an alarming one. The fintech giant decreased its internal valuation by 28%. Last year, the company was valued at around $95 billion, seen to breach over $100 billion not long after as it aimed to expand its business further in Europe. However, a recent 409A price change, which suddenly sent Stripe’s share price plummeting, proves that anything can happen in a span of 12 months or far less.
This is a huge deal for the fintech world since Stripe holds the second-largest share in the digital payment processing market at 18.11%, outranked only by Paypal’s 44.21%. It also had a revenue of around $12 billion and held investments of $1.1 billion across 14 organizations in 2021. For a company of such magnitude to flounder partially reflects the condition of the global market. And it’s not alone in the struggle.
Industry mavens expect market leader Paypal’s earnings to decline by 25.22%, year-over-year, on its next earnings release (August 2). This puts it in the same boat as Stripe. Meanwhile, one of the biggest BNPL companies, Klarna, saw its value cut by a mindboggling 85%.
Clearly, the once-blossoming market is feeling the effects of today’s global economic crisis.
Inflation Pounces Hard on Fintech
The Brainy Insights’ report wasn’t entirely wrong in its forecast. The global fintech market was really experiencing explosive growth at the time of composing the report. Key fintech statistics revealed that its AI segment was poised to grow by 28.9% annually through the forecast period while its banking segment raked in $41.52 billion in 2021. The hike in AI use cases has been affecting other markets in a similar manner. What the forecast failed to anticipate is the sudden rise in inflation rates that currently leads to potential recession.
The business model of fintech companies like Stripe and Paypal involves taking a cut from every transaction. With inflation, people have less spending power to frequently purchase items or hire external services. As a result, they will transact less, which means fewer revenues for fintech companies. It gets even worse with the Federal Reserve’s ongoing interest rate hike in an attempt to prevent Americans from spending. This will make the number of transactions on payment gateways sink even deeper.
However, today’s landscape isn’t completely grim for the fintech world. A lot of big fintech companies are looking to diversify their portfolio in other areas. For instance, Stripe and its ilk are looking into the identity verification vertical, which is far more resilient against inflation. Stripe could also push its other platforms like its accounting solution, Atlas, to garner more returns.
Nevertheless, times will continue to be tough for the fintech space until the economy stabilizes. Forecasts have been made that inflation will dissipate between 2023 and 2025. Stripe wishes for another sudden reversal of fortune like what happened in the past few months, this time in its favor.
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