FinTechs spent years pursuing growth at all costs — where profits were an afterthought.
Revenues, eyeballs, clicks and accounts — in short, the more business the better — were the key measures of success.
But Charlie Youakim, CEO of Sezzle and Peter Beckman, CEO and co-founder of Treyd, told PYMNTS’ Karen Webster that times are different now.
And that means that some FinTechs — the forward-thinking ones that focus on long-term health of their enterprises — are actually taking a harder look at the economics of each and every customer relationship, fine-tuning the pricing where they can.
In some cases, they’re exiting some relationships and pausing new go-to-market initiatives entirely.
It may seem incongruous that executives would walk away from the potential to gain market share.
But as Youakim and Beckman noted, the urgency for a reexamination of everything from contract terms to staffing levels is palpable. The Federal Reserve has signaled rates will be higher for longer. The cost of capital is higher than it’s been for decades, and macro uncertainty means that for many companies, top-line momentum is uncertain as well.
We’re a long way away from 2021, when inflation had yet to become a concern, when interest rates were at about 0%, and FinTechs found raising money was a relatively straightforward endeavor.
And yet, “I still hear it,” Youakim said, “even through this time period. People still just talk about revenue. But who cares about your revenue — unless you’re talking about driving profitable revenue.”
It’s not easy to switch gears. For many of these digital upstarts, the path is bumpy at best, marked by layoffs, belt-tightening and balancing risk and reward.
The balanced approach also entails exiting some customer contracts that don’t make sense from a risk/reward standpoint, and boosting prices where possible, Beckman said, reflecting the need to offset the rising cost of capital. He said that “every customer that we’ve onboarded” has been part of repricing conversations, and there has been “very little pushback” on the increased fees.
As a general rule, Youakim cautioned against the pursuit of business with an eye for only the largest, marquee name clients. The judicious guiding principle at the moment may be to shrink the client portfolio while maintaining quality.
“If you ‘catch’ the wrong contract, it’s like catching an anchor in the middle of the ocean,” he warned.
“You have to be careful.”
Sezzle has also been repricing contracts, Youakim said.
“You can also readjust your business model to make sure that you can price at the levels required to work with an enterprise … but we will not do negative unit economics.” The strategy in place now, and over the longer term, is to improve gross margins while keeping operational expenditure flat.
“These things are painful when you’re doing them, but in the end, by making these ‘correct’ decisions, things start to feel right again,” Youakim observed.
“Everybody understands that things are tough out there, and that we need to change,” Beckman said.
Treyd offers a case study on the tough decision-making that’s now par for the course for FinTech execs.
Treyd focuses on the business-to-business (B2B) payments space, transforming a staid corner of finance by providing upfront payments to suppliers on behalf of growing retail businesses and allowing buyers to repay Treyd later.
In this way, through what is essentially a buy now, pay later (BNPL) offering for commercial payments, cash-flow dynamics between the two sides of the B2B coin are improved.
Sezzle operates as a pure-play BNPL provider and has logged successive quarters of black ink on the operating line, even though active customers and merchants have dropped year over year.
In early September, Treyd announced that it had received a $12 million extension of its Series A funding, bringing its cumulative backing from investors to $25 million. The funding, Beckman noted, is earmarked to be used in existing markets, and to help underpin the march to profitability.
Beckman emphasized that the focus on existing markets comes after a long period of torrid growth, illustrated by the fact at the beginning of 2022, the company had a top line “run rate” of less than a million dollars in annual revenue. Fast forward to today, and sales have grown by a factor of more than 10. In the span of only six months, Treyd expanded into five countries.
“We still have one important proof point,” he told Webster, “and that is that can also be profitable,” amid the growth. “We’ve always had good unit economics, but when you’re growing at that rate, you don’t always prove this.”
To reach that goal, he added, Treyd will pause its expansion, and has decided to put off its entry into the U.S. There are plenty of challenges in Treyd’s core markets in the U.K. and the Nordic countries, where Treyd’s customers ultimately depend on consumer spending — and consumer confidence in those core geographies remains low.
The company will also stop hiring — a bid to “keep costs flat while growing our customer base and transaction volume.”
Treyd, Beckman said, anticipates achieving profitability in the next 12 months or so, adding, “We won’t be growing 800% and 900% year on year. That was our norm six months ago. We can lower our growth and be more disciplined, without having to go ‘negative.’”
In the end, Youakim said, tough times won’t last forever, and the companies that embrace a refocus on their operations and the levers that can be pulled — and lean on peers to learn about best practices — will emerge all the stronger.
As he told Webster: “Get back to the business fundamentals … because it turns out that the business fundamentals work.”
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