Turnaround Venture Capitalists See Opportunity In The Current Downturn
PayPal, Klarna and Bolt have chopped their workforces in the face of mushrooming macro-economic pressures, suggesting a potential fintech shakeout in the offing.
Payments players PayPal, Klarna and Bolt all recently moved to restructure their businesses in the face of new economic pressures, and another peer, Fast, shuttered altogether, highlighting the emerging macro-economic perils for fintechs.
San Jose, California-based PayPal has pared jobs worldwide, with cuts in San Francisco, Chicago and Ireland while Stockholm-based Klarna said it plans to eliminate about 700 employees, or about 10% of its workforce, and California checkout upstart Bolt shaved about 185 workers, a third of its headcount, according to reports in recent weeks.
The workforce reductions and related restructurings come as the digital payments companies grapple with rising interest rates, significant inflation and less plentiful capital. With their operating results under duress from those economic conditions, strategic flaws are coming to light and investors have become wary.
This is the type of cyclical economic hardship that some fintechs, also including buy now-pay later player Affirm and a multitude of other venture-backed firms, have never encountered in their short lifespans and it will test their business models in a way that separates the strong from the weak, industry professionals say.
“We haven’t seen how this specific industry, particularly some of the newer firms, like a Klarna or an Affirm, will perform,” said Fitch Ratings analyst Mike Taiano.
Inflation is the latest specter overshadowing the businesses, with the consumer price index rising to a 40-year high. With many paytech companies pitching their services as more cost-effective alternatives to traditional tools, demand from commercial clients with pinched budgets could increase, but it could prove harder to boost prices. For those payments companies offering credit services, inflation also means the possibility of customers taking on too much debt and defaulting on commitments.
Digital payments pioneer PayPal and Swedish BNPL provider Klarna are both in the business of extending credit to consumers so they face a double-edged sword. For now, delinquencies and defaults aren’t an issue, but analysts say that could change, given the current economic environment.