Fintech startup mistakes are piling up

by James · December 4, 2022

After experiencing record investment volumes in 2021, venture funding is falling significantly this year due to rising inflation rates, political instability and falling stock prices. Investors are slowing their pace of investment considerably, and while many startups are still holding strong and weathering the chaos, dozens have shut down.

Since the beginning of the year, at least 11 fintech companies have shut down, according to CB Insights. A majority of these startups folded due to an inability to raise new capital, as was the case for proptech startup Reali and neobank Bank North, while others, such as Neufund and LendUp, crumbled in the face of regulatory pressure and legal problems.

Of the 11 fintech startup failures reported, four of them — CommonBond, Reali, Volt Bank and LendUp — were quite large and costly, involving startups that had raised $100 million and above, the data shows.

Student loan lending startup CommonBond, which had secured a total of $1.3 billion in disclosed funding, said in September that it will “wind down” its business after its core business took a major hit during COVID-19.

Reali, a real estate and fintech platform that had raised $292 million in funding, announced in August that it will begin a shutdown and will lay off most of its workforce on September 9, citing “challenging real estate and financial market conditions. “

In Australia, Volt Bank, the first online-only bank to secure a banking license in the country, said in June it would shut down, return deposits and sell its mortgage book after failing to raise enough funds to support the business. The digital bank had raised $102 million.

Finally, LendUp, a lending company, was forced by the US Consumer Financial Protection Bureau to stop making new loans and collect some outstanding loans in December 2021 for “repeatedly lying and unlawfully defrauding its customers,” the regulator said. LendUp had secured 366 million dollars.

Other notable fintech failures this year include Bank North, a challenger bank that raised $96 million before running out of cash and collapsing in October; Propzy, a Vietnamese real estate technology platform that had raised $33 million but abruptly closed in September, citing the impact of the pandemic and the volatile global economic situation due to the conflict between Russia and Ukraine; B3i Services, an insurance blockchain consortium that had secured $26 million but filed for insolvency in July after unsuccessful funding rounds; and Neufund, a security token platform that closed in January after raising a total of $19 million.

The three other fintech startups that rose this year and are highlighted in the CB Insights report are Wingocard, a financial literacy app for teenagers that shut down in May; AskRobin, a credit marketplace for unbanked populations, went out of business in January after reaching nearly two million customers; and Binance Asia Services, the Singaporean arm of cryptocurrency exchange Binance that pulled out of the city-state and closed in February.

2022 has been a trying year for the global fintech scene amid declining funding activity and a turbulent economy that has forced players to make severe cutbacks.

Klarna, a buy-now-pay-later (BNPL) leader, cut its workforce by around 10% in May, citing pressure from investors to slim down the business. Klarna lost more than $580 million in the first six months of 2022.

Brex, a company management company once valued at $12.3 billion, laid off 11% of its employees this year as part of a restructuring.

The German digital bank N26 reported in October a larger loss for 2021 and a decrease in customer growth. N26’s loss in 2021 widened to 172 million euros from 151 million euros in 2020. The bank added one million new customers last year, down from the two million customers added in 2020.

Global fintech funding this year reached US$63.5 billion in Q3 2022, a sum that represents just 45% of 2021’s total US$141.2 billion, data from CB Insights shows.