What does the new reality for fintech look like?

After a number of years with increasingly good access to capital, the current macroeconomic climate heralds a new reality for Danish financial technology. 

But what does this mean?  

As interest rates continue to rise, valuations are plummeting, and risk-averse investors are making more demands – forcing fintech companies to adjust to a new normal. 

What this 'new normal’ is, is yet to be seen, but we have a few ideas. 

Some believe that the current economic situation will provide a ‘healthy reality check’ for investors and founders alike – causing the quality and accessibility of fintech solutions in the Nordics to become even better. 

Others believe that although investments have decreased and subsequently the number of deals, we can still expect great activity. There is a lot of money in circulation in the global economy, which means there are still opportunities to make good deals. 

But one thing is for sure: investments are falling. 

Less investments and more demands 

The autumn of 2021 saw investments in fintech’s peaking around the globe, but now those numbers have fallen by (at least) 16%*. 

This can be seen across successful companies worldwide. It came as quite a shock to the market when Swedish fintech unicorn Klarna had to shave more than 85% off its valuation in connection with new capital raising this summer. Similarly, Danish unicorn Lunar has had to pause its acquisition of a major Norwegian bank due to insufficient capital. 

- The development of a company like Klarna is significant because they have been one of the world's most successful companies in this sector and in many ways also a benchmark for the rest of the industry. We can see how their development now trickles down through the entire ecosystem, says Thomas Krogh Jensen, CEO of Copenhagen Fintech. 

The new normal 

According to Mads Raahede, who is a partner and head of KPMG's consulting business, these challenges will probably continue. 

- The tendency towards jubilant optimism that we have seen in recent years has been narrowed down. We have had many years of chronic progress and a lot of money in the global economy, and this has created a greater willingness to take risks, he says. But now the times are different, and investors are less risk averse. I think it will continue like this for quite some time. This is probably the new normal.” 

A renewed focus on profit 

However, it isn’t just that investments are slowing down, it is also that investors have changed the way they invest in general, putting greater focus on generated earnings. Raahede points out the positive in this: 

- In the past, investments were largely driven by the fact that there had to be users on the platforms. Now you look more at what users generate in terms of revenue and whether they generate profit, he says. However, the falling valuations and the increasing number of distressed companies also create new opportunities, which will probably mean that we will see more acquisitions in the coming time. 

These developments are also expected to bring more cooperation and consolidation between financial institutions and technology companies, who will be looking to make deals with one another to secure and strengthen their products. This will lead to even stronger solutions which are more accessible than they are now. 

In conclusion 

Investments may have decreased, and deals too, but great activity within fintech is still expected. Stronger partnerships, stronger solutions and stronger opportunities are expected to emerge as a result of this economics distress, and Raahede agrees: 

- There is a lot of money in circulation in the global economy, there are opportunities to make a good deal, and then capital should preferably be inflation-proofed. When I add the three parameters together, I am confident, he says and emphasizes: 

- I don't think fintech investments will end up in free fall. 

Read the full article in Børsen here 

*All figures from KPMG's report -Pulse of Fintech H1 ’22