The financial-technology (FinTech) industry, which has been rapidly growing in recent years, is now facing job losses as companies cut costs. Affirm Holdings Inc. and Upstart Holdings Inc. are among the FinTech firms firing one in every five of their workers. This news has come as a shock to many, as the FinTech industry has been booming during the pandemic.
Fintechs are now feeling the pressure to mature and streamline rapidly, as borrowing has become more expensive, and the industry becomes more crowded. In this blog post, we’ll take a closer look at why fintechs are cutting jobs and what this means for the future of the industry.
Fintech Companies Cut Jobs Amid Tighter Borrowing
As the cost of borrowing has risen, many fintechs have struggled to maintain their momentum. LendingClub Corp. has seen its earnings decline and its shares slump, while other firms have been forced to make deeper cuts to their payrolls.
Since November 2022, several fintech firms have announced job cuts. Blend Labs Inc. has announced it will cut 28% of its onshore jobs, while Plaid Inc. and PayPal Inc. have fired 260 and 2,000 employees, respectively. Stripe Inc. is cutting over 1,000 jobs, or 14% of its workforce, while Chime Inc. is reducing its headcount by around 160, or 12% of its staff.
Affirm CEO Max Levchin has said that his company’s headcount reduction of around 500 represented about six months of engineering hiring. These dismissals were announced as the lender reported a bigger-than-expected net loss for its most recent fiscal quarter.
Why Are Fintechs Cutting Jobs?
The fintech industry has been expanding rapidly over the past few years, driven by low interest rates and consumer demand for debt. However, this has led to many firms having to mature and streamline more rapidly than they had planned. Job cuts are a quick way for companies to reduce costs and increase efficiency.
Fintech firms were able to attract high levels of venture funding and unicorn valuations during the early days of the pandemic. However, as the industry becomes more crowded, companies are now feeling the pressure to cut costs and improve their margins.
What Does This Mean for the Future of Fintech?
Despite the job losses, there is still much room for improvement in the financial-services industry, and consumers will still want digital offerings. While the industry may experience some turbulence in the short term, fintech will continue to be a big bet for investors, banks, and technology companies.
Charlotte Principato, financial services analyst at Morning Consult, believes that smart banks and large financial institutions will scoop up talent, products, ideas, or even entire struggling startups and bring them in-house to make the innovations their own. This will allow these firms to continue to innovate and expand their offerings, while also reducing the risk of job losses in the future.
Final Thoughts
The fintech industry has been rapidly expanding over the past few years, driven by low interest rates and consumer demand for debt. However, as the industry becomes more crowded, companies are now feeling the pressure to cut costs and improve their margins. While the short-term outlook may be challenging, there is still much room for innovation and growth in the industry. By streamlining and maturing, fintechs can position themselves for long-term success, while also reducing the risk of job losses in the future.
