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Financial technology start-ups often talk as if they are blazing new trails through a world of staid incumbents. Any investors getting excited about an upcoming wave of fintech IPOs, however, should remember that we have been down this road before.
Buy now, pay later specialist Klarna and digital banking app Chime are expected to be at the forefront of a broader revival in US listings in the first half of 2025, while online brokerage eToro is also reportedly planning a US deal. In the UK, business payments group Ebury and digital lender Zopa are among the names considering deals this year.
The precise business models of each of these companies vary, but almost all of them have done an impressive job of reaching younger consumers or businesses who felt ignored by traditional institutions.
Still, it’s not always clear where old hat ends and new school begins. Does an app and AI-infused decision making make a company a tech innovator? Is an online lender just a bank with higher funding costs? The lack of consensus has contributed to prolonged volatility even for the more successful listings.
In the 2010s, peer-to-peer lenders like LendingClub, GreenSky and OnDeck promised to revolutionise business and consumer loans, but struggled when cheap funding dried up. Even after a recent rally, LendingClub’s market capitalisation is down 80 per cent from listing. GreenSky and OnDeck were both acquired at deep discounts to their IPO prices.
A second fintech wave during the coronavirus pandemic included names like Affirm, Sofi, Robinhood and Upstart. Robinhood has tripled in value over the past 12 months, but is still barely above its IPO price. Affirm — Klarna’s closest public peer — is trading above its IPO price, but is down 40 per cent since the close of its first day of trading.
Perhaps the third generation will be the charm. Most of the new listing candidates are relatively mature — Klarna is already 20 years old — and have shown at least a path to profitability, if not regular cash generation. That sets them up better for an environment where public-market investors are more wary of cash burning start-ups. There are also now more listed competitors to benchmark against, which should make it easier to agree a fair value.
However, private backers who overpaid during the mid-pandemic bubble will be pushing for aggressively high pricing to reduce their losses. Public investors starved of good IPOs for three years should be wary of accepting a bad deal. Traditional finance may have been disrupted, but the incentive to overprice new stock issues remains as strong as ever.
nicholas.megaw@ft.com
