FinTech Bankruptcies and Speedbumps Prove Digitization Offers No Straight Path to Viability

There’s no smooth sailing for corporates into the end of 2023.

As 2023 becomes 2024, and as we spotlighted here, the pandemic era relief has run its course, the cash coffers have been drained, and in the United States, bankruptcies have been on the rise. Such has been the case around the world, as Germany has seen double-digit bumps in bankruptcy filings too.

And while the weight of the bankruptcy waves seems to rest with smaller businesses — mom and pop shops, the staples of Main Street — at least a few digital disruptors joined the roster.

In a recent blog, Upsilon IT has noted that 63% of tech startups fail. Drill down a bit, and the data becomes even more stark, as 75% of VC-backed FinTechs fail.

Bankruptcy does not automatically mean a company goes out of business — and, indeed, the filings are generally meant to give an enterprise breathing room to restructure.

Among those filing for bankruptcy in 2023: Plastiq, where the company, per The Wall Street Journal, raised more than $142 million in funding, and owed more than $50 million to creditors. After bankruptcy proceedings, it was acquired by Priority Technology Holdings, Inc. in August.

Embedded finance firm Railsr, as we reported earlier this year, was sold to a consortium of global investors. The company went into bankruptcy in March of this year — and last year had raised $24 million in financing.

Insurtech Vesttoo, which had gone into bankruptcy over the summer, has been enmeshed in what has been reported as a “fake collateral scandal,” as Reuters reported.

Further Trouble Ahead?

The pressures have been widespread, beyond U.S. and European shores. Recent reports from the likes of the Economist and the Financial Times show that India, which has been a leader in past years for digitization and an embrace of smartphones and apps, has not materialized as FinTech haven. Byju, The Economist noted, has seen its valuation plunge from $22 billion to $5 billion. More than 80 unicorns have dotted India’s tech landscape, and slightly more than 20 of them are profitable. The FT reported that stricter capital rules in the financial services sector, designed to reduce risk tied to loans (and especially unsecured loans), are thinning the pool of FinTechs, as, for example, Zestmoney is shutting down.

The lifeblood of the FinTechs — VC funding, and we might liken it to the pandemic era relief funds that shored up so many small and medium-sized businesses (SMBs) in years past — has been anemic at best. As recently as last month, FinTech funding had plunged by nearly 50% year on year. And the public markets are hardly offering respite. Though the FinTech IPO Index, as tracked by PYMNTS has rebounded in 2023, only five of the nearly four dozen FinTechs in the Index trade above “busted” status (above their offer prices).