Fintech May Cool off Slightly This Year

January 25, 2016         By: Mike Dautner

After the meteoric rise of the financial technology sector in 2015, some analysts are starting to question the future of the sector.

Through 2015, fintech startups recorded massive funding rounds and IPOs, with many of them reaching the ‘unicorn’ valuation of $1 billion or more. But some analysts are starting to wonder if the fintech scene will turn into a bubble, similar to the dom-com bubble around 2000.

One problem with startups is that profitability is often times neglected when speculators drive share prices up. It’s often assumed, like in the dom-com bubble, that startups need time to drive growth to profitability.

Also, similar to the dom-com bubble is the idea that new technology will boost future growth. In the last quarter of 2015, the value of fintech deals fell 47 percent to $2.21 billion, while the number of deals also fell slightly. Other analysts are noting that many fintech companies are pricing their IPOs above market expectations.

Although the financial technology sector does appear to have cooled off a bit in the final quarter of last year, that does not necessarily mean a bubble is growing or has been popped. Global stock markets have experienced significant volatility ever since China’s stock market crash last summer.

Moreover, global growth has also been subdued, which may lead to cautious investment decisions.

Another key factor that may explain the cool off is that fintech companies appear to be keen to the number of overpriced IPOs. Square, for example, intentionally lowered its IPO price rather then bumping it up to risky levels.