Is fintech in decline?
The 2010s were a time of tremendous growth and success for many fintech companies, but as we entered the 2020s, the landscape seemed to change. In 2023, the fintech sector experienced a significant decline in investments, dropping by 48% compared to the previous year. Unfortunately, 2024 did not bring better news, with a further decrease in investments of 20% globally, following a downward trend that had started in 2022 and continued through 2023.
One company that exemplifies the struggles faced by fintechs in these challenging times is Varo Bank, an American neobank based in Salt Lake City, Utah. Established in 2017, Varo was the first neobank to receive a national bank charter from the Office of the Comptroller of the Currency. Colin Walsh, the founder and CEO of Varo Bank, is a seasoned professional with a background in consumer banking at Lloyds Banking Group and American Express. Walsh emphasized that Varo’s approach was to combine digital innovation with the principles of a traditional bank, believing that this was the key to long-term sustainability and success in the industry.
The importance of being a bank to truly function as a bank, with all the necessary licenses, regulatory compliance, and a foundation of trust with customers, cannot be overstated. Whether this trust comes from the state or a network of people, the fundamental need for customers to feel secure in their deposits is paramount. Despite promising signs such as a 22% increase in revenue, a 38% improvement in net income, and a 31% reduction in customer acquisition costs in 2024, Varo Bank is still struggling to achieve profitability. The company reported a net loss of $65 million in the previous year, with only $60 million in bank equity capital remaining at the end of 2024. This financial challenge is evident in their recent funding efforts, falling short of their target in the Series G round by only securing $29 million out of the desired $55 million.
Varo’s situation is reflective of the broader trends observed across the fintech sector, where many companies are facing a capital crunch that threatens their survival. Startling statistics from research firm Carta reveal that in the USA alone, 966 startups closed down in 2024, a significant increase from the previous year’s count of 769 closures. The environment in the fintech industry bears a resemblance to the boom and subsequent bust experienced in the early 2000s with the dot-com bubble; survival for these companies will require resilience and strategic adaptations to weather the storm and emerge stronger.
In conclusion, the challenges faced by Varo Bank and other fintech companies underscore the complexities and uncertainties of the current market conditions. While the road ahead may be rocky, those companies that can navigate these obstacles and adapt to the changing landscape are poised to emerge as leaders in the industry, paving the way for a more sustainable and successful future.
