Half a trillion dollars wiped from once high-flying fintechs

The value of financial technology companies that took advantage of the boom in initial public offerings earlier in the year has been wiped out.

According to CB Insights data, more than 30 fintechs have listed in the US since the start of 2020.

Concerns about rising interest rates, lack of profits and untested business models have put them at the sharp end of this year's sell-off.

According to an analysis by the Financial Times, shares in recently listed fintechs have fallen an average of more than 50 per cent since the start of the year, compared with a 29 per cent drop in the stock market. Their market value has fallen in the last two years. Around $460 billion has been lost if each stock is measured from its all- time high.

Upstart had a second-quarter update last week. The company blamed the Tumultuous Economy for slowing down revenue growth and driving up losses

This was made worse by the fact that the same quarter last year had an exceptional result that resulted in revenue growth of more than 1000 per cent.

The pressures have hit more established companies like PayPal and Block, which have lost more than $300 billion in market cap.

Public market valuations have fallen through to private companies. The Wall Street Journal reported this week that Stripe had cut its internal valuation by more than a quarter after it slashed its price tag from $46 billion to under $7 billion.

Dan Dolev said that the first part of the tech sector to benefit from Covid was digital payments firms.

They are overcorrecting to the downside, too.

As year-on-year comparisons become more flattering, Dolev expects to see a rebound for many companies.

Some companies are under scrutiny from regulators. The SEC is looking into conflicts of interest created by payment for order flow, which is the main source of revenue for online broker Robinhood. The Consumer Financial Protection Bureau launched an inquiry into buy now pay later firms.

Traditional financial services' results have been affected. On Friday, Wells Fargo blamed a write down in its investment portfolio for missing expectations. CB Insights says that Wells Fargo Strategic Capital was one of the largest investors in the year.

Many investors are supporting the sector despite the challenges. Net outflows have been less than $90 million this year, which is less than the previous two years, but the fund is still popular among investors. Since the beginning of June, investors have added a net $32 million.

The director of research at Global X said that rising rates are going to create challenges for companies in the next few years.

Despite the increased risks in the market, we are only down about $40 million in net outflows so far this year.