Skip to content

2022’s Great Fintech Refocus Will Usher in New Names and Priorities

Great Fintech Refocus Will Usher in New Names and Priorities
Click Play to LISTEN

i2c president, Jim McCarthy, joined PYMNTS CEO, Karen Webster, for a fireside chat to discuss how priorities have changed dramatically during the COVID pandemic and why fintechs will need to refocus/reprioritize in order to come out on top at the end of the economic downturn. This blog post is republished from a Inc. interview originally published on

Were fintechs overvalued as 2021 ended and 2022 kicked off? In some cases, certainly. That’s brought us to the brink of the great Fintech refocus – and yes, there will be winners and losers.

Venture capitalists are shutting off the cash spigot left and right as the pandemic party, as it were, ends in an inflationary implosion that’s exposing overextended consumers and overfunded fintechs that were clever and even valuable, though perhaps not enduring.

“To say these are extraordinary times is a big under understatement,” i2c President Jim McCarthy told PYMNTS‘ Karen Webster. “To put it into the context of the beginning of this year, we were kind of playing through some of what I’ll call real disasters that we kind of all skated by, like the WeWork situation [but] in the Fintech space.

“You could maybe throw Bolt into the conversation with overstated numbers,” he said. “Then you start to think that some of these ideas were interesting, but I‘m not sure they were permanent.”

When times get tough, so do VCs. “You add in the macroeconomic conditions, and I think you‘re seeing, for lack of a better term, a flight to quality,” McCarthy said. “The investors … have taken beatings on their balance sheets, and funding Journey concerts at Money 2020 starts to feel something like 2000 again.”

Comparisons to the dot-com bubble burst of 2000 and the housing market crash of 2008 are inevitable, with the caveat, as Webster pointed out, that the fintechs created this situation with the help of their deep pocketed investors – a single-minded focus on hypergrowth, often without a sustainable model underneath.

“Human nature is a funny thing,” McCarthy said. “When money was cheap and fear of missing out ruled the world, you didn‘t want to be the guy who didn‘t invest in something that had hyper growth [potential], even if you didn‘t really fully believe that was the end game.”

We‘ve rewatched this show a few times since 2000 – and 22 years later, the siren song of runaway valuations rewarding growth without much concern about profitability still plays.

Check Your Business Model

McCarthy noted that at times like this even concepts with legs can get punished.

Pointing to one fintech taking a hit now, he said, “Even good businesses, super fantastic businesses, let’s use Stripe as an example, [get hit] I forget what I saw, a 35% valuation decrease? And that’s a business,” he added, “[that] I think most people truly believe in what the founders built.”

He continued, “Then again, if you look at some of the other models that aren‘t making money that may have credit risk in their balance sheet in an environment where interest rates are rising, inflation’s going through the roof, [and] you‘ve not been through a down credit cycle, what’s that going to look like?”

Fair question, and we‘re starting to get an idea in the second quarter as valuations get pummeled and conversations turn to consolidation via mergers and acquisitions – or a fire sale.

Ironically, McCarthy sees crypto as one sector that might come out intact. Take bitcoin, for instance – what he called “the grandfather of all crypto.” By design, only 21 million of them will ever exist, and he thinks the law of supply and demand will eventually put an end to the speculative frenzy that’s led to wild price fluctuations lately. People are buying and holding bitcoin for the long haul – and “we‘re not even close to touching the beginnings of it in terms of valuations.”

Putting aside web3 and metaverse use cases for the moment as investor ear candy, he said, “there’s a middle ground of just using cryptocurrencies and tokens to plum new federated blockchains, new use cases. I think there’s still some interesting things that could come from that. Certainly, cross-border commerce, B2B use cases and what GPM coin was doing.”

There’s no getting around the volatility in crypto and far-off visions of monetizing the metaverse and web3, but he isn‘t sour on those either. “If you believe that this will be a community that exists in the future of users that are highly engaged, and like most things, advertising and commerce follows, you‘re going to need easy ways to pay for things inside of the metaverse.”

18 Rough Months Ahead

Speaking like someone who’s navigated every financial disaster of the past two decades or so, McCarthy is steely yet sanguine about the connected economy, which he says “is here to stay.”

But the 2022 “black swan” inflation red alert woke VCs up from their recurring dream of endless hypergrowth businesses. As he said, “The numbers were staggering because the only way you could purchase anything over the last two to three years was via digital means. The numbers were just so big on a year-over-year basis, [and now] they‘re going to come back to earth.”

The great fintech refocus is happening simultaneously with – and to some degree because of – the great reopening. People are reengaging with the physical world, and that was bound to deflate some digital-native and digital-first concepts while rewarding others.

McCarthy mentioned hearing at a recent conference – that he traveled to and attended in person – that people have consumed 41 billion hours of Roblox game time to date.

“Do the math on that,” he said. “Back to the consumption of digital goods, digital media, where people are spending their time, TikTok or others, this is not going away anytime soon.”

But he referred to the Fed’s impending rate hike and the belt-tightening across companies, telling Webster that dozens of CFOs see a recession in the first half. “Forget whether that happens or not,” he said. “You‘re now in the heads of CFOs of big companies. If they‘re thinking that, they‘re telling people about hiring freezes and they‘re not going to invest in things.”

Which brings the discussion back to the great fintech refocus of 2022.

McCarthy’s current outlook is that “we‘ve got at least a rough 18 months ahead of us until the clouds start to part, we start to see way out of this. Hopefully the Russia-Ukraine War ends sometime before that, which will go a long way to, I think, make people feel better.”

As that resolves, so will the climate for fintechs, as VCs and banks regain confidence and restart financing next-gen technologies across the entire payments product portfolio.

Some winners won‘t need “fortress balance sheets,” he said, “but solid balance sheets with real revenues and running real businesses that have operating margins.” They’ll go on shopping expeditions for M&A opportunities.

“You can bottom feed and pick up things that were too expensive a year ago that you needed to help you grow your business, whether that means international expansion, new feature functionality, tuck-ins that drive top-line growth.”

In the final analysis, McCarthy said, a lot of fintechs are built on shaky fundamentals. And the combination of high customer acquisition costs and high churn is a recipe for strong initial growth that will likely be unsustainable over the long haul. Given their high dependence on interchange income, he said, neobanks in particular may have a tough time surviving if the economy continues to sour.

McCarthy sees strong analogs to the dot-com boom and bust in the early 2000s – and also to the 2008 recession, when PayPal emerged from the ashes because it tapped an unmet consumer need.

“If you look at the space I operate in, there are only a handful of players that prop up the vast majority of fintech,” he said. “I fully expect to see that there will be one or two that emerge from this, [because] they had a better business model, they have better investors willing to play the long game, and I do think there’s an opportunity to double down and gain market share and come out of it even stronger.”

Want to learn more about i2c?

Enhance credit decision-making and drive strategic initiatives with i2c.

Contact Us