Payments Dive | Discover Eyes Benefits of Downturn
As smaller fintechs grapple with restructuring challenges, the card company expects there will be more opportunities for it in hiring talent and acquiring businesses.
As valuations for startups shrink and some restructure, established payments companies such as Discover Financial Services may benefit from expanding opportunities to lure talent.
When asked last week at the Morgan Stanley U.S. Financials, Payments and CRE Conference if the pull-back in fintech valuations creates opportunity for the card company, Discover Chief Financial Officer John Greene said it does, and suggested it may aid the company in recruiting.
In the recent past, Riverwoods, Illinois-based Discover noticed “a lot of people with tech skills ended up leaving (Discover) to go to fintech players,” but those employees found “the currency wasn’t worth what they thought it would be worth,” he said on June 15. Greene didn’t specify what currency he was referring to.
Hiring and retention have been a top challenge for payments firms, where massive amounts of capital flowing into the space have fueled frenetic growth. But as startups and public companies alike now face macro-economic headwinds such as inflation, formerly sky-high valuations are falling. Companies like PayPal, Klarna and Bolt have cut employees.
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Discover Eyes Benefits of Downturn Cont.
To tamp down inflation, the Federal Reserve last week raised its benchmark interest rate by 75 basis points. The Fed’s efforts, such as quantitative tightening and rate hikes, “typically aren’t correlated to losses for us,” Greene said.
That’s mainly because Discover targets “a prime revolver customer segment” – referring to cardholders who tend to carry a balance each month. For that clientele, “there’s plenty of daylight between making their payments and having payment shock as a result of interest rate increases,” he said.
“We’re very sound from that standpoint,” Greene said. “I look at the balance of this year and into next year in a generally very favorable light.”
But for smaller fintech rivals on the ropes, Greene has a more pessimistic attitude. “I personally don’t think valuations have bottomed out yet,” he said.