NEW YORK–Rising interest rates aren’t just hitting consumers’ wallets, they are also taking a toll on the shares of numerous fintechs.
The Global X Fintech ETF fell about 6% and closed last Friday at its lowest level since May, according to Dow Jones market data cited by the Wall Street Journal.
In addition, shares of the buy-now-pay-later company Affirm Holdings dropped 17% over the last week, while Block, which owns BNPL provider Afterpay, was down 15%. PayPal Holdings was also down approximately 10%, while the trading app Robinhood Markets decreased about 9%. Opendoor Technologies, an online house flipper, declined 20%, the Journal reported.
‘Two Main Reasons’
“High rates are a threat to fintechs for two main reasons. The rate increases are meant to slow down the economy, which is putting pressure on consumers—especially those at the margins who are often more likely to seek out a fintech lender instead of a bank,” the Wall Street Journal said. “What’s more, the companies’ own borrowing costs are rising as broader rates increase, squeezing their margins and threatening to put smaller players out of business.”
The report noted many fintechs performed well earlier in 2023, boosted by investors’ hopes that high rates would begin to decline. But recent Fed actions have made clear high rates are here to stay for a while.
‘Bad for Emerging Industries’
“Higher rates for longer are bad for emerging industries like fintech,” John Hecht, an analyst at Jefferies, told the Journal. “There will eventually be a consumer consequence where consumption will slow, defaults will move upward. Generally speaking, it’s gonna be a tough go.”
The report added that higher interest rates also give investors more options for safe places to earn yield, which makes them less willing to take on riskier bets such as buying stocks of relatively unproven companies.
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