After years of momentous growth, the new world of fintech, not Financial Technology as I know it, is undoubtedly dealing with its first big dip. A few months ago, we all began to hear rumours about a slowdown in fintech funding. Fast forward to July 2022, and many of us have watched on in shock as Klarna, one of the sector’s veritable big hitters saw its valuation slashed by 85% during a particularly tough funding round. If businesses of that scale are feeling the pinch, what about the smaller ones?
It’s a question that is perhaps best answered through the prism of neobanking, which has been adversely affected by the ongoing economic downturn. Unfortunately, the ramifications being felt across the sector are seemingly seismic. Sadly, we have already seen companies in the field cease operations, perhaps the most notable example being Volt of Australia.
For context, Volt was the first exclusively online bank to gain an Australian banking licence. Only a year ago, the company raised AUD85M, in a Series E round led by major mortgage broker, Australian Finance Group. Despite strong industry backing, the company failed to make inroads into the country’s sizeable banking market and has now stopped trading.
So, was Volt an exception in the neobanking sector, that happened to be particularly ill-suited to the broader macroeconomic issues at play today, or does the company’s collapse point to further troubles ahead for the industry in general? This probably isn’t going to win me any friends, but I think the answer is more likely to be the latter. Right now, neobanks around the world are probably beginning to worry about their long-term viability.
In a matter of years, commentators have gone from deeming the neobanking sector as being a nonplayer, to something much more important. Countless articles and essays have been written and printed, which praised the sector’s boundless potential and its almost divine right to overtake traditional banking companies. Those of us who were more sceptical about this ‘inevitability’ were seen as being behind the times.
However, I think it’s now safe to say this is no longer the case. Over the years, the neobanking sector’s potential ability to disrupt a trillion-dollar industry was routinely overstated. Ultimately, the banking market is very different to those affected previously by other disruptors, such as Uber. Simply put, replacing JP Morgan Chase and Goldman Sachs is infinitely more difficult than replacing privately owned taxi companies.