Despite expectations for a slowing economy, the outlook for the fintech sector remains neutral for the year ahead, says Fitch Ratings.
In a new report, the rating agency said North American and European fintechs are expected to enjoy stability in 2024, which could be offset by weakness or risks in certain segments of the industry.
Overall, Fitch said it doesn’t anticipate any ratings movement among fintechs in the short term, given that most issuers have stable rating outlooks, along with “healthy balance sheet positions with moderate and/or low leverage.”
Additionally, the rated fintechs, which are largely focused on payments, “generate meaningful free cash flows that Fitch expects will remain strong and positive even in a stressed scenario,” it said in the report.
Nonetheless, the rating agency said its key concern for the sector is a slowdown in consumer spending that turns into a headwind for fintech issuers.
“We expect issuers to remain cost-conscious with a keen eye toward margin stability in 2024 with lagged effects of inflationary and rate cost pressures,” the report said.
Additionally, the fintechs’ approach to capital allocation is expected to remain conservative in the year ahead, Fitch said, noting that potential uses of cash for things such as M&A currently “have a higher threshold given a significantly higher cost of capital.”