FinTech Unicorns Could Get Hit Hardest By Recession

The fear and uncertainty surrounding COVID-19 has sent the stock market into a freefall—and experts say that FinTechs are especially vulnerable during this time.

FinTech startups had a strong 2019, raising $33.9 billion in total last year across 1,912 deals. There are 66 VC-backed fintech unicorns worth a combined $243.6 billion. 2019 saw a record of 24 unicorn births, 8 of which occurred in Q4’19, including Next Insurance, Bight Health, Flywire, High Radius, Ripple and Figure.

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Yet even before the coronavirus outbreak, which has sent the stock market falling in recent weeks, there have been warnings of a FinTech bubble due to skyrocketing valuations. Now according to a report by US brokerage firm Rosenblatt Securities, FinTech unicorns could be the worst hit if there is an extended worldwide recession. In fact, it estimates the world’s FinTech unicorns could each see a 15 percent on average downfall in the event of an extended recession—a $76 billion drop in their combined market value.

“The bump up we have seen [in fintech valuations] between funding rounds may flatten out or even contract significantly in cases of down rounds,” the report explained.

Sifted added that the index of public US fintech companies crashed harder than the S&P in the last few weeks.

As for which financial tech sectors could be the hardest hit, the report noted that challenger banks will likely feel the pain because of declining interest rates, which will weaken their competitive edge. In addition, online lenders could be impacted by lower net interest margins, falling loan growth, rising delinquencies, and defaults. This could delay planned IPOs for LendInvest and Zopa.

And with the volatility of the stock market, investors, particularly millennials, will shy away from investing, which will have an impact on the robo advisor market.

Some FinTechs were lucky enough to secure new funding before the outbreak. Latin America-based AlphaCredit recently signed an equity round for up to USD$125 million led by SoftBank's Latin America Fund, while Sweden’s open banking platform Tink raised €90 million in an investment round co-led by Dawn Capital, HMI Capital and Insight Partners.