Varo Bank is joining other fintechs struggling in a worsening economic environment.

The charter bank announced last week that it recently laid off 75 employees, or about 10% of its workforce. The cuts are the result of increased inflation and market volatility, Varo Chief Executive Colin Walsh said in a July 19 staff message.

“As a business, we are not immune to the impacts of our current environment and we must make some difficult decisions to ensure that Varo has sufficient capital to execute on our strategy and path to profitability,” Walsh said in the letter.

Similarly, buy-now-pay-later fintech Klarna and digital banking technology company Amount also recently announced staff cuts of 10% and 17%, respectively. Both companies cited global economic slowdown as the reason for the layoffs, according to published statements.

Klarna is perhaps the starkest example of the fintech sector’s challenges. During the company’s latest funding round earlier this month, its valuation was slashed by 85% to $6.7 billion from $45.6 billion at the same period last year.

Burning cash ‘in the name of growth’

Fintechs’ struggles are likely to continue, Kate Drew, director of research at CCG Catalyst Consulting Group, told Bank Automation News.

“These companies tend to burn a lot of cash in the name of growth,” Drew said. “The problem is, against the current economic backdrop, it’s becoming harder to raise capital. A tighter funding environment means greater focus on burn rate for the companies in question and for investors. That can translate into layoffs and other measures to check spending.”

Fintechs that emphasize cash flow will have a better shot at successfully navigating the current economic environment, she noted.

“The way these companies focus on growth is a positive thing; it’s why they are able to innovate the way they are,” Drew said. “But, in an environment like this one, the conversation can’t be only about growth. And certainly not growth at the expense of efficiency.”

The San Francisco-based Varo — the first fintech to obtain a bank charter back in 2020 — is looking to improve its outlook with the establishment of a new business unit, Varo Tech, to bring technology, design, data and product functions under one umbrella. The new structure is intended to increase pace and reduce costs, Walsh said in his message.

A Varo spokesperson declined to provide the specific positions eliminated by the company. However, the bank has taken steps to decrease its burn rate, including limiting hiring in the most critical roles as well as cutting back on marketing investments, according to Walsh’s statement.

The layoffs come despite Varo’s successfully raise of $510 million in September 2021 in an oversubscribed funding round that brought its total funding to $992.4 million. Following that funding round, the bank’s total valuation reached $2.5 billion with 4 million customers, Alex Woie, head of strategic communications at Varo, previously told BAN.

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