From boom to landing: fintech companies recalculate their business

The fintech sector is one of the most promising in the local economy. After the boom of the last four years, which has allowed it will triple in size in the number of companies in the country, both regionally and locally, fintech companies are starting to do so “recalculate”. Changes in global conditions, accelerated by the Fed rate hike, are forcing them to rethink their business models.

According to data from KPMG, in the first quarter of this year there was a sharp decline in venture capital investments. Since the business model of most fintech companies is based on offer “free” products and services, the contribution of investment capital is essential for this type of company.

“In the first quarter of 2022, a total of 11 deals were recorded for $ 60 million in the early stages (pips above $ 1 million and Series A). However, no deals were observed in the later stages. Therefore, the ‘total amount of investments ended in less than $ 110 million in the first quarter of 2021, despite the number of deals exceeding the figures for that period, “they explained in the advisory.

Of these total amounts, just 18% went to companies in the fintech sectoralthough it remains attractive to international investors.

Mariano Biocca, executive director of the Argentine Chamber of Fintechs, said: “In a current global scenario characterized by the rise in rates in the United States, the continuation of the war in Ukraine and the consequent “Flight to quality” which translates into the falling prices of technology companies (among others), many companies that have arrived with very accelerated growth have had to propose changes in their business strategies. ”

In the last few weeks some news has been known explaining this. After the decision on the means of payment Prisma “turn off” your Todo Pago digital wallet, to integrate it into another vertical of its company, Banco Itaú Uni-Banco has advanced its divestment plans in its fintech leg, Ank. The wallet was launched in late 2020, but the product did not take off.

“Given the global scenario of rate hikes and the impact on fintech valuations, Itaú Uni-Banco has decided to divest its ank operation to re-evaluate possible strategic paths within 60 days “, explained the institution in an official communication to its over 200 employees. The Brazilian bank is still analyzing the fate of this startup, which could become an innovation hub for the institution.

Other companies in the industry have already had to go out and announce staff cuts, due to the “end of sweet silver”. Many of the investment rounds planned for the first part of this year have been delayed, with investors paying more attention not so much to the technology that the companies offer, but to their profitability.

“Surely in the coming months we will see mergers and acquisitions. Fintech talent is not a problem because it is easily relocatable, especially the technical one. Perhaps it is a good time to be able to clean up the direct cost and fully understand the cost of project technology”, said Mario López, CEO of Poincenot tech.studio.

“I believe that in 12 months we will have a different scenario, adding value to some more experienced fintech and / or revenue strategies, which already have recurring revenue. Perhaps these companies can buy other companies with complementary services,” he added.

For Biocca, in the meantime, the local fintech sector will consolidate, far from deflationary: “It is not the first time that the global economy goes through a challenging cycle of these characteristics, and I trust in the skills of the Fintech entrepreneurs in Argentina who have demonstrated many times the their talent, referring to the regional level, “he said.