The fintech industry experienced a mix of highs and lows in 2022. While some companies saw record funding rounds and gained new users, others faced significant challenges.
These included struggles with:
- secure funding,
- the impact of the cryptocurrency market downturn,
- company collapses,
- and mass layoffs.
Additionally, the industry was plagued by a series of scandals, including the FTX collapse and the Wirecard scandal going to court.
Overall, it was a difficult year for many in the fintech sector.
The Issue with funding
FinTech firms struggled to secure funding in 2022 due to market volatility and uncertainty caused by factors such as the pandemic, the energy price crisis, and the threat of another recession. This led investors to be more cautious about investing in new projects, resulting in a significant decrease in funding for the FinTech industry.
In 2021, investors had injected $261.7bn into the fintech industry across 2,923 deals, but in 2022, the industry only secured $89.5bn in new capital across 1,819 deals. This decrease in funding was a major shift from the trend of increasing investments in the fintech industry in previous years.
The brutal layoffs
Throughout 2022, the fintech industry experienced a wave of mass layoffs due to volatile markets and the end of cheap money. One company that garnered significant attention for its layoffs was online mortgage lender Better.com.
The company faced criticism for allegedly mismanaging the layoffs and for accusations of mishandling unemployment for laid-off workers and firing people on maternity leave.
In March, the company laid off over 3,000 of its roughly 8,000-person workforce, and there were additional rounds of layoffs in the following months. Better.com stated that the layoffs were necessary to protect the company against challenging market conditions.
Wirecard has its day in court
The Wirecard scandal, one of the biggest fintech scandals ever, involved the German payment processing company being accused of being a billion-dollar scam and of fraudulently inflating its profits.
These accusations were made by the Financial Times after it had probed the company for years over a potential €250m hole in its balance sheets. Wirecard denied any wrongdoing. In December, the former CEO Markus Braun went on trial to face charges of fraud and market manipulation, while two other managers faced similar charges.
They could be jailed for up to 15 years if found guilty. Braun has denied embezzling money from Wirecard and has accused others of running illegal activities behind his back. Following the collapse of Wirecard, other companies have acquired parts of the business, such as identity verification company IDnow acquiring Wirecard Communication Services.
A sentence in the trial is not expected until 2024.
Crypto, well underway by winter
The crypto winter, or the significant downturn in the cryptocurrency market, was a major event in the fintech industry in 2022.
Prior to this, the value of cryptocurrencies had soared due to the pandemic and increased interest from traditional financial players.
In 2021, investors injected over $52.1bn into the blockchain industry. However, in 2022, the industry secured only $23.6bn across 1,306 deals, indicating a significant decrease in funding and interest in the cryptocurrency market.
The decrease in funding for the cryptocurrency industry in 2022 is linked to the overall decline in the value of cryptocurrencies, which has lost about two-thirds of its value since November 2021.
This drop in value, estimated to be around $2tn, can be attributed to volatile markets, the threat of a recession, high-interest rates, and the end of the pandemic. Experts predict that the crypto crash will continue into 2023 and expect regulatory crackdowns on the industry due to the volatility and the failures of key players such as FTX, Celsius, and BlockFi, as well as the declining stock of companies like Coinbase.
A look back at the FTX scandal
FTX, the world’s second-largest cryptocurrency exchange, filed for bankruptcy in November after a report was published revealing that its founder Sam Bankman-Fried’s trading firm, Alameda Research, had invested heavily in FTX’s FTT token.
Bankman-Fried was arrested in the Bahamas in December and extradited to the US, where he has been accused by the US Securities and Exchange Commission (SEC) of “orchestrating a scheme to defraud equity investors” and by US prosecutors in Manhattan of eight criminal counts. He has pleaded not guilty.
The collapse of FTX has had wider consequences, with Japanese crypto exchange Liquid, which had been acquired by FTX earlier in 2022, also disabling fiat and crypto withdrawals on its platforms and exchange BlockFi filing for bankruptcy due to “significant exposure to FTX”.
The case has also led to increased scrutiny on the cryptocurrency industry by regulators, with SEC chair Gary Gensler stating, “until crypto platforms comply with time-tested securities laws, risks to investors will persist.”
Revolut take the top spot
UK neo-bank Revolut became Europe’s most valuable start-up in December by default, after its main competitors, payments company Checkout.com and buy-now-pay-later (BNPL) firm Klarna, suffered down rounds that reduced their valuations.
Checkout.com’s valuation fell from $40bn in January to $11bn in December, while Klarna’s dropped from $45.6bn to $6.7bn. Revolut, which had been in third place at the beginning of 2022, reached a valuation of over $33bn following an $800m funding round in July.
Despite the volatile nature of the fintech industry, Revolut continued to hire new staff, attract new users and expand into the US in 2022. It has delayed the publication of its 2021 results until 2023 and claims to be profitable.
The Bottom Line
It’ll be interesting to see what’s in store for the industry in 2023.