There’s an old cliché in business that states you can’t cut your way to profit. That maxim will be put to the test by Chime and its digital competitors.
The promise of neobanks, or digital-only players, has always been to upend the banks. And now the disruptors are being disrupted, and personnel is being reduced in a last-ditch effort to turn red ink into black ink on the operating line.
According to an email from Chime, owing to market conditions, the digital bank is laying off 12% of its personnel.
Though the neobank stated in its statement that it is well-capitalized, market dynamics indicate that the “conventional” sources of capital that might enable it to weather the long term are not as readily available as they previously were.
This includes institutional finance, as CB Insights data shows that as of the end of the September quarter, FinTech funding was down 38% quarter over quarter, amounting to $12.9 billion, a multi-quarter low.
In general, as the Fed and other central banks continue to raise rates in an inflationary climate, investors seek greater returns — and, by extension, larger returns on money invested in the FinTech sector.
