More fintech lenders to fail, warns Moody’s

The ratings agency noted that while a small number of fintech operators are thriving, such as Judo Bank in Australia, those on ‘build now, profit later’ models are struggling as investors become more selective amid a rising interest rate and slower growth environment.

“Fintech momentum has slowed amid funding woes and banks have upped their game in response to the fintech threat,” said Stephen Tu, Moody’s vice-president and senior credit officer.

“Banks have enhanced their digital offerings and expanded their capabilities organically, through partnerships or acquisitions. Moreover, they have access to stable deposit funding given their well-established brands and customer relationships.”

Mr Tu said that the regulatory pendulum has swung to become less favorable for fintechs, particularly in several developed economies.

“For example, regulators in Australia aim to tighten rules for buy now pay later firms, and in 2021 added requirements to the country’s licensing framework for new depository institutions. These changes have significantly hit fintechs that were not profitable and relied on existing banking architecture rather than offering a novel technology or product,” he said.

Neobanks, once touted as the new disruptors of the banking industry, have almost disappeared from the landscape in recent years. Xinja shuttered in 2021 with 37,884 customers and 54,357 individual deposits worth more than $252 million.

Volt Bank closed in 2022 with 5,730 customers and $107 million in deposits.

Local buy now, pay later player Openpay collapsed last month.

The Mortgage & Finance Association of Australia (MFAA) has called for full regulation under the Credit Act and more education around BNPL for consumers, citing concerns broker members had observed BNPL can “act as a barrier or cause delays” in seeking credit.

Rising interest rates have changed investor appetite, with riskier assets taking a back seat to more stable, income-generating investments. Global fintech funding slumped by 46 per cent to $75.2 billion in 2022, according to CB Insights’ 2022 State of Fintech Report.

Moody’s believes that while a large number of nascent fintechs with weaker business models will disappear, a handful will survive and prove truly disruptive over time.

“In particular, fintechs that are part of larger conglomerates or serve a niche segment, such as Australia’s Judo Bank, Brazil’s Nubank and Korea’s KakaoBank, are performing well,” Mr Tu said.

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