November 4, 2022
Illustration: sorbetto/DigitalVision Vectors/Getty Images; Protocol
Good morning, and welcome to Protocol Fintech. This Friday: the Collison brothers’ mistakes at Stripe, what fintech CEOs had to say about earnings, and the rise of ransomware payments.
Off the chain
In today’s newsletter, you’ll hear what fintech bosses had to say to Wall Street, but what they didn’t say is also pretty significant. PayPal’s CEO didn’t say the word “crypto” once in his call with analysts to talk about earnings. Robinhood mentioned adding new tokens in its release, but that was about it. Even Block mostly skipped over bitcoin, except to say trading volume was down in Cash App. Their customers may still be buying and trading crypto, but it’s clear that big, publicly traded fintechs have decided that shareholders don’t want to hear about it.
— Owen Thomas (email | twitter)Stripe’s big mistakes
Saying that it needed to build “differently for leaner times,” Stripe on Thursday laid off 14% of its staff, more than 1,000 people total. In a letter to employees, the leaders of the online payments company — which was valued at as much as $95 billion last year — detailed what led to the cuts.
Stripe made two "very consequential mistakes," co-founders Patrick and John Collison wrote.
- "We were much too optimistic about the internet economy’s near-term growth in 2022 and 2023 and underestimated both the likelihood and impact of a broader slowdown," the brothers wrote in an email to staff announcing layoffs. "We grew operating costs too quickly. Buoyed by the success we’re seeing in some of our new product areas, we allowed coordination costs to grow and operational inefficiencies to seep in."
- It's a lament similar to those made by leaders at Robinhood and Shopify when they laid off employees earlier this year: They hired rapidly in response to demand that, this year, slowed more quickly than expected.
- "Fintech companies were some of the biggest beneficiaries of the pandemic: with a lot of financial services moving online, they were growing the fastest," said Robert Le, a fintech analyst at PitchBook. "Because they were growing so fast, a lot of fintech companies hired the fastest as well."
Now company leaders are looking at a very different picture. "We are facing stubborn inflation, energy shocks, higher interest rates, reduced investment budgets, and sparser startup funding," the Collison brothers said in the email.
- Chime is seeing the same concerns. The neobank cut 12% of its staff Wednesday, about 160 employees. "To ensure the long-term success of the business and as we look at current market dynamics, we are focusing our organization to be fully aligned with our company priorities," the company said in a statement.
- Brex, Opendoor, Dapper Labs, and Upstart also joined the long list of fintech and crypto firms to cut jobs this year.
It is easier to recover from mistakes when you have cash. The problem is that checks are much harder to come by these days.
- The $12.9 billion raised by fintech firms in the third quarter is down 64% from the same months in 2021, according to CB Insights.
- "A slowdown might be our new reality for a while," said Anisha Kothapa, a senior intelligence analyst for fintech at CB Insights, in an online seminar Thursday. Rounds are taking longer to close and investors are pushing back on valuations.
- Chime was expected to complete an IPO this year, and Stripe has long been rumored to be nearing a public debut given its size and valuation. But that market is ice cold, with IPO proceeds down 94% this year at $7.5 billion, according to Renaissance Capital.
- Stripe reportedly cut its internal valuation by 28% in July. The F-Prime Fintech Index tracking the value of publicly traded fintech firms is down about 75% year-to-date.
This is unlikely to be the end of layoffs — fintech or otherwise (Lyft also cut jobs Thursday, and Twitter’s mass layoffs have begun). A recent PwC survey found 81% of HR execs expect to reduce staff through either cuts or slowing hiring. Stripe may offer an example of how to do it with minimal blowback. The company receivedpraise for the Collisons’ explanation and for a severance package that includes a minimum of 14 weeks' pay, according to the memo, as well as other assistance, such as immigration support for U.S.-based workers with visas. “We overhired for the world we’re in,” the letter said, “and it pains us to be unable to deliver the experience that we hoped that those impacted would have at Stripe.”
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On the money
On Protocol: Block beat earnings expectations, with strong growth largely fueled by its Cash App business.
Fidelity is edging closer to crypto. The company has opened the waiting list for Fidelity Crypto, a product aimed at retail customers.
Also on Protocol: Coinbase lost more users in the third quarter, but the decline wasn’t the disastrous drop that Wall Street was expecting.
PayPal and Apple have reached a truce. The two technology giants will begin accepting each other’s products in their respective payment ecosystems.
Kraken's NFT service is now live. The crypto exchange is beta-testing the marketplace for NFTs, which offers "gasless" transactions and an intuitive design.
Bill earnings beat the estimates.The company formerly known as Bill.com also acquired Finmark, a financial planning software provider for small and mid-sized businesses.
Overheard, earnings edition
It was a busy day for earnings Thursday, with PayPal, Block, and Coinbase reporting. Here’s what we heard on their calls with analysts.
PayPal CEO Dan Schulman is bracing for a lump of coal from shoppers. “Given a challenging macro environment, slowing ecommerce trends, and an unpredictable holiday shopping season, we are being appropriately prudent in our Q4 revenue guide,” he said.
Meanwhile, Block CEO Jack Dorsey crowed about the growing number of Cash App customers using its debit card and banking services. “Everything that you need in your financial life you can find within Cash App,” he told analysts. “So that is the goal. That's what we're focused on. And I think we have the best strategy to get there.”
Coinbase CEO Brian Armstrong defended the decision to launch the company in the U.S. even though it sometimes felt like “we're at a disadvantage, and [it] caused us to move more slowly than foreign competitors. But I think it's the right long-term bet. … Regulators don't always act quickly, but they do eventually act. And we'll see that regulatory clarity here in the U.S. and we’ll see, hopefully, a more level playing field emerge over time.”
The chart
Ransomware payments have been rising steadily over the past decade, according to FinCEN. From around $10 million in 2011, the size of payments has soared to more than half a billion dollars in 2020. Bitcoin is the most common form of ransomware payment, according to FinCEN.
A MESSAGE FROM THE FINANCIAL TECHNOLOGY ASSOCIATION
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Thanks for reading — see you Monday!