Major fintech layoffs in 2023

December 12, 2023 4:57 PM

Regulatory pressure, rising rates, consumer stress and other factors made life difficult for many fintechs in 2023, leading to layoffs after several years of strong performance and hiring.

Fintechs had to cut expenses as revenue and funding from investors slowed down. For many companies, including online lenders, software providers and payment platforms, those savings came in the form of layoffs.

Online lenders that sell their loans to investors struggled to find buyers, as rising rates made other investments more attractive, and borrowers faced more challenges. Companies like LendingClub and Upstart, which both trimmed their staff this year, are operating more leanly as loan originations have dropped, said Vincent Caintic, an analyst at Stephens.

"The main driving factor is that the origination volume at many fintechs has been shrinking considerably since the heyday of 2021," Caintic said. "The shrinking of their origination volume has generated lower profitability or in some of the cases, losses for those companies."

Additionally, regulatory inspection of offerings like banking-as-a-service and buy now/pay later increased stress for fintechs in those niches, in some cases limiting clients and business.

Here's a list of some of the fintechs that laid off employees in 2023:

LendingClub saw decreased demand from investors to buy its loans as rising rates and pressure on borrowers increased risk and lowered reward.

MichaelVi - stock.adobe.com

LendingClub (twice)

LendingClub laid off about 400 employees in 2023, through two rounds of cuts. The company let go 225 employees in January and 172 folks in October as rising interest rates put pressure on its core business of selling loans to institutional investors.

The layoffs earlier in the year, which included a C-suite executive, made up 14% of the San Francisco-based company's staff. LendingClub said at the time that the cuts were expected to save $25 million to $30 million in compensation and benefits in 2023.

The company, which primarily refinances credit card debt, saw institutions' appetite for its loans drop as rising rates and inflation made other investments lower-risk and higher-reward. LendingClub announced at the time it would halt its origination of loans in commercial real estate and equipment finance, and those teams made up part of the layoffs.

As rates continued to rise, the company announced in the fall it would cut another 172 employees, or 14% of its staff. CEO Scott Sanborn said higher interest rates were driving the company's problems. Sanborn added in the fall, that he doesn't expect appetite from bank buyers, which historically made up 50% of the company's marketplace, to return soon, based on conversations with investors. To offset lost revenue, LendingClub launched a new product for institutional investors, like hedge funds, in the middle of the year.

SoFi

SoFi laid off employees from its technology unit in January, as the student loan moratorium put pressure on one of its key revenue streams. While the cuts represented less than 5% of its staff, the company had an estimated 4,200 employees, according to Macrotrends.net.

The company, which is also one of the few major fintechs with a bank charter, announced new products and member growth that helped offset student and home loan challenges. SoFi's technology unit is a key investment area for the company and CEO Anthony Noto said in October that the business will be a driver of growth.

"Those are low capital businesses, in fact nearly capital free," he said on the company's third quarter earnings call. "They have also hit the point of profitability, which allows us to step on the gas to drive even more scale on them."

Upstart

Upstart, an online consumer lender, laid off more than 350 employees as it struggled to find institutional buyers of its loans. The cuts, which made up about 20% of the San Mateo, California-based company's staff, came only two months after a 140-person layoff in November.

Its challenges persisted throughout the year. In November, its third quarter earnings showed limited fee revenue growth and what CEO Scott Girouard called a "difficult consumer lending environment."

"From a financial perspective, we'd of course prefer to be growing quickly, but this is a time when it's wise to be operating in a conservative mode," Girouard said on the earnings call.

Aspiration

Aspiration, a climate-focused neobank, laid off 180 employees in the spring and summer, due to "limited capital," CEO Olivia Albrecht wrote in a March worker adjustment and retraining notification letter. The cuts impacted roles across departments, including software development and product management.

"The layoff is necessitated by the need to streamline and restructure the business in light of current economic conditions and the limited capital available to the company," Albrecht wrote. "The company is saddened to have to take this step."

The Marina del Rey, California fintech offers products for business and individuals, including selling carbon credits to corporations and consumer debit cards that its website says are linked to banks that don't use the deposits for "planet-destroying activities," like fossil fuel extraction and refining.

Affirm

Affirm, a fintech that offers payment services like buy now/pay later, announced it would cut about 19% of its workforce in February, after over-hiring. CEO Max Levchin said the earlier hiring was deliberate, due to compelling opportunities, but a slump in usage of buy now/pay later and rising rates put pressure on the fintech's revenue.

"This is the right decision. We hired a larger team than we can sustainably support," Levchin said about the layoffs on an earnings call earlier this year.

Levchin also said the company shifted hiring to Poland, where it can pull in talent less expensively than in Silicon Valley.

Synapse (twice)

Synapse, a technology firm that acts as a connector between traditional banks and fintechs, laid off more than half its staff this year as it faced regulatory pressures and the loss of a major client. The company cut 18% of its workforce in June, and then another 40% of its staff in October. Synapse's cuts this fall, which included 112 employees, were unexpected, said people close to the matter.

Regulatory scrutiny of the BaaS sector, which has risen over the last year, has increased stress for companies like Synapse, which can fall outside of the purview of regulators. Three banks that were big players in the sector – Cross River Bank, Blue Ridge Bank and First Fed Bank – have been hit with enforcement actions from federal financial regulators regarding their fintech management.

Oportun (twice)

Oportun Financial laid off about 350 employees this year in two rounds of cuts, primarily of its "corporate staff." In February, the company said it would cut about 155 employees, and in its third quarter earnings, Oportun announced another 185 layoffs.

The San Carlos, California-based fintech, which offers installment loans to consumers, also announced it would wind down a partnership with Sezzle, a buy now/pay later platform. CEO Raul Vasquez said in the company's third quarter earnings call that he was "disappointed" by results, as the fintech's core target base, borrowers with lower credit scores, began facing more challenges last year amid inflation and rising rates.

"This is not how we anticipated or wanted to close 2023," said Jonathan Coblentz, Oportun's chief financial officer, in November. "Nevertheless, my conviction remains fortified by the decisive actions we announced today."