After years of money flowing like water and hiring sprees, the tech industry got to the point where it needs to tighten its belt. For months now, tech companies have announced round after round of layoffs as the economy slows down and fears of a recession have grown. So far, more than 41,000 workers in the tech sector have been laid off.
Up until now, it’s easy to see that 2022 is shaping up as the year of downsizing, with cuts ranging from dramatic and very public layoffs to unannounced staff winnowing. In summary, 4,189 fintech employees were let go across 45 events in the first half of 2022, making up 11.2% of the 46,740 startup employees laid off.
If the tech industry enjoyed a boom during the pandemic, when people turned to their phones like never before to do everything from shopping to online banking, their popularity lowered over time. In 2022, fintech startups raised USD 21.5 billion globally, down 39% from the peak in Q4 2021.
How did it start?
The downsizing trend took off and became more and more popular as venture capitals started advising their portfolio founders to plan for the worst. Sequoia Capital, for example, released a 53-page presentation in which it laid out why it will only become more difficult for founders to raise money and operate. The presentation points to sustained inflation and geopolitical conflicts that is bound to limit the ability to slash interest rates or implement other solutions that won’t be more than a ‘quick fix’.
As tech companies tend to suffer more than other industries when interest rates go up – because they rely more on outside funding – they have been affected by the present circumstances.
Besides, many of these tech firms may have had overly ambitious hiring plans coming out of the pandemic. Startups hired workers even when there was no immediate need for them, simply because the demand and competition for quality workers was high. As a result, many companies grew from dozens of employees to hundreds.
Moreover, as we spiral in what seems to be a potential financial crisis, investors like to see that companies in which they invested take initiative and are not passive in the face of this potential situation, even if its coffers are full of cash.
What companies are affected?
The layoffs span across industries, from mortgage lending to digital payment processing. The moves show that companies are bracing for a recession, and more late-stage or public companies could make a second cut as uncertainty over the economy looms. Late-stage companies have been hit hard by layoffs, as they’re the ones that grew fast during the funding boom of 2021 and have to wait out an exit as the IPO market is at a standstill.
Although today’s large, late-stage companies have more viable business models than they did before, unicorns also tend to have one thing in common: they’re capital-intensive businesses.
That means as long as funding is abundant, they can raise money and support capital-intensive activities. But when VCs scale back, it’s more difficult for those large companies to raise money.
Until July 2022, at least 65 companies have initiated layoffs. In August, even large tech companies like Microsoft trimmed staff.
The layoffs don’t solely occur in a certain type of company, as both public and private tech companies have issued them, from streaming giants like Netflix to startups like Bolt. The wave affected most cryptocurrency exchange companies as well, with the firms preparing themselves for what is called the ‘crypto winter’.
The slowdown of ecommerce
The COVID-fuelled ecommerce party couldn’t last forever. Businesses knew that it was only a matter of time before consumers reverted to their pre-pandemic shopping habits of mixing online and in-person shopping.
While retail is still strong overall, inflation’s impact on consumer spending combined with the return to in-store shopping means ecommerce businesses are left fighting for a bigger piece of a smaller pie.
Amazon, Wayfair, and Target all reported slowdowns in their ecommerce business in 2022. Amazon’s online sales decline by 4%, and Wayfair lost USD 378 million, struggling to keep shoppers gained. So, the fact that Amazon has reduced its workforce by nearly 100,000, about 6% out of its 1.52 million employees, shouldn’t come as a surprise.
Adding to this argument, Wayfair has also cut nearly 900 jobs, or about 5% of its global workforce, in hope these cuts will help it manage operating expenses and realigning investment priorities. Wayfair is one of the companies that had flourished at the beginning of the pandemic, when demand for home decor upgrades was so hight it broke global supply chains and caused lengthy shipment delays. However, as inflation tapped out lower and middle-income shoppers and wealthier customers shifted their spending to travel and different services, the brand lost 24% of its active customers.
Shopify, another big player, began adding workers in 2020 in response to the growth in the number of stores and restaurants that went digital during the lockdown. In July 2022, the company announced it is laying off about 1,000 people, or 10% of its global workforce. The company’s decision came as an ascertainment of the fact that ecommerce’s boom in the pandemic didn’t stick to the customers as much as the ecommerce providers would have wanted.
Walmart has also cut off approximatively 200 corporate jobs because of the rising costs, bloated inventories, and weakening demand for general merchandise. US consumers are pulling back on clothing and durable-goods purchases as soaring inflation raises the cost of food and basic items. Trimming the corporate workforce isn’t an unusual move for Walmart as the company eliminated hundreds of corporate jobs around the same time of year in 2020.
Fintechs jumping on the layoffs train
High interest rates, rising inflation, and a drop in stock market valuations, have also affected the results fintechs obtained over the two years since the COVID-19 outbreak. Even though some suggest that the drop in investment could be a good thing for the industry, for fintech businesses looking to survive the downturn, cutting staff is increasingly becoming a viable option.
All the heat started with Klarna’s plan to lay off about 10% of its global workforce. The layoff announcement came after reports showed the company was set to lose a third of its valuation in a new round of funding. Before Klarna, BizPay, an Australian BNPL company, has laid off 30% of its staff.
Buy Now, Pay Later (BNPL) services became popular as online shopping accelerated during the pandemic. Now, investors are getting worried about the sector’s growth as consumers fear rising inflation and increase in borrowing costs.
The layoffs extend to the digital payments market as well, with Stripe reportedly suspending some of the employees who support TaxJar, a tax compliance startup it acquired 2021. This happened after the company lost its valuation by 28%.
Curve, the ‘all-your-cards-in-one’ fintech banking app, has made 60-70 people redundant, amid mounting fears of a recession. The company has a headcount of 425 people, according to LinkedIn, meaning the true figure of the layoffs represents a similarly high percentage of cuts made by Klarna recently.
Following the same trend, Twilio reduced its workforce by approximately 11%, which account for around 900 people across its staff of over 7,800. With a Q2 2022 sales growth of 41%, the lowest since the December quarter in 2017, the company reported a loss of USD 322.8 million on USD 943.4 million in revenue. Therefore, there’s no surprise Twilio took the decision to fire people, especially as the paperwork filed with the U.S. Securities and Exchange Commission shows that the headcount reduction will cost between USD 70 million to USD 90 million.
TrueLayer is the latest in this long line of fintechs to announce a 10% cut of its workforce, citing ‘challenging market conditions’ for this decision. It’s a big change from September 2021, when the company was raising USD 130 million at a valuation of over USD 1 billion.
Winter is coming
Crypto has gone through several boom-and-bust cycles since its inception, however, this year’s combinations of shocks took the companies by surprise. The Federal Reserve’s raising of interest rates caused investors to move their money out of riskier bets like crypto. Russia’s invasion of Ukraine exacerbated inflation and supply chain issues. Then, in May, the Terra ecosystem collapsed.
Faced with these steep market declines, cryptocurrency companies have laid off more than 3,000 workers since June. Like in the other cases, some of the most impacted companies seem to be the ones that grew the fastest. Coinbase, for example, went public 2021 and it was intending to embark on a hiring spree of 2,000 employees. However, it had to lay off 1,180 employees, or about 18% of its workforce, citing an upcoming crypto winter.
Similarly, Gemini cut about 10% of its 1,000 employees, and exchanges Crypto.com and BlockFi took the same decision, firing 5% and 20% of their workforces, affecting some 260 and 170 employees, respectively. Since then, Robinhood fired 713 employees following a drop in revenue, just three months after it already reduced its headcount by 9%.
Moreover, citing ‘extreme market conditions’, crypto lender Celsius became the first major platform to pause withdrawals and transfers between customer accounts. More have since followed. Crypto exchange Zipmex, for example, temporarily paused withdrawals, citing market volatility and financial issues with unnamed business partners; it resumed withdrawals within a day, but later filed for bankruptcy protection in Singapore, suffering from the late global downturn in digital currencies.
While the short-term forecast for crypto looks bleak, experts believe it would be a mistake to count crypto out entirely. Specialists’ hope is that crypto projects will learn from this volatility to shift away from get-rich-quick schemes and reprioritise slower growth and projects that have clearer value to consumers.
Looking ahead
According to a survey of 722 US executives, 50% of firms anticipate a reduction in overall headcount, while 52% foresee instituting a hiring freeze, and 44% rescinding job offers.
Moving towards the end of the year, layoffs are not as active as they were in summer (especially in July, when tech layoffs peaked so far). However, companies including Gemini, Gopuff, and Hopin had a second round of layoffs. Four months after slashing around 10% of its global workforce, Klarna follows the trend and announces another round of layoffs. The news comes after the company saw its losses more than triple to USD 538 million in the first half of 2022 as the economy slows down and it faces soaring costs and mounting credit losses.
Companies keep using layoffs and the specter of a recession to assert more control. Mark Zuckerberg, for example, said he was fine with employees’ ‘self-selection’ out of the company. Some companies, on the other hand, have asked employees to move to a headquarters city or leave, which may be an indirect way to trim head count without doing layoffs.
However, some tech companies are still hiring. Most probably, plenty of them expect growth to bounce back, as it did for the tech industry a few months after the initial shock of the pandemic in 2020.
About Claudia Pincovski
Claudia is a content editor at The Paypers working on the Banking & Fintech team at The Paypers. Holding a bachelor’s degree in Journalism, she is very passionate about exploring the latest news on financial inclusion, financial literacy, digital banking, and Open Finance. Claudia is a diligent researcher, a meticulous editor, and an active advocate for diversity and inclusion.
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