In June 2023, fintech company Petal Card, valued at $800 million earlier that year, faced uncertainty as it sought a buyer amidst doubts about its survival. The company experienced two rounds of layoffs, cutting 20% of its workforce in June and reducing staff the previous year. In this article, we'll discuss what happened and why, as well as the potential future impact of these events on the industry.
The layoffs at Petal Card were driven by a combination of economic pressures, shifts in industry demands, and internal restructurings. Continued high interest rates have impacted consumer lenders like Petal, making borrowing more expensive and putting pressure on their profit and loss statements. The cost of capital has also been much higher due to the macro rate environment, further straining lenders' financials.
In May, Petal CEO and co-founder Jason Rosen informed employees that the company had about a year's worth of cash left, indicating the need for cost-cutting measures. Despite raising $55 million in equity funding this year, including a $35 million round led by Peter Thiel's Valar Ventures, the company still had to undergo two rounds of layoffs, cutting 20% of its workforce in June and reducing staff the previous year, leaving only business-critical employees at the startup.
The company aims to reduce costs and adapt to the challenging market conditions caused by high interest rates. Post-layoffs, Petal may need to realign its investments and focus on its core product offering, which is Visa credit cards that help consumers establish their credit.
By targeting consumers who are new to credit, such as young people, immigrants, or divorcees who lack a credit history, Petal could potentially position itself for future success in the market. However, the company's ability to navigate the current economic landscape and achieve long-term growth remains uncertain.
Petal Card's layoffs may signal a broader trend in the fintech industry, as consumer lenders face challenges due to high interest rates and increased borrowing costs. This could lead to further consolidation in the market, as smaller companies struggle to compete with larger players like Super.com, which are better positioned to weather economic headwinds and expand their customer base.
As a result, the industry may see a shift towards more diversified offerings and a focus on serving underserved segments, such as customers with lower household incomes and low FICO scores. Ultimately, the impact of Petal's layoffs on the finance industry could serve as a catalyst for change, driving innovation and adaptation in the face of challenging market conditions.
Petal Card's layoffs resulted from economic pressures, industry shifts, and internal restructuring, highlighting the challenges consumer lenders face due to high interest rates. The company's future remains uncertain as it refocuses on its core product and target market. These developments may signal a broader trend in the fintech industry, leading to consolidation and a shift towards serving underserved segments. Petal's experience could drive innovation and adaptation, shaping the industry's response to challenging market conditions.
