Finance
Fintechs that made profits from high interest rates now face key test
The app icons for Revolut and Monzo displayed on a smartphone.
Betty Laura Zapata | Bloomberg via Getty Images
Financial technology firms were initially the biggest losers of interest rate hikes by global central banks in 2022, which led to tumbling valuations.
With time though, this change in the interest rate environment steadily boosted profits for fintechs. This is because higher rates boost what’s called net interest income — or the difference between the rates charged for loans and the interest paid out to savers.
In 2024, several fintechs — including Robinhood, Revolut and Monzo — saw a boost to their bottom lines as a result. Robinhood reported $1.4 billion in annual profit, boosted by a 19% jump in net interest income year-over-year, to $1.1 billion.
Revolut also saw a 58% jump in net interest income last year, which helped lift profits to £1.1 billion ($1.45 billion). Monzo, meanwhile, reported its first annual profit in the year ending March 31, 2024, buoyed by a 167% increase in net interest income.
Now, fintechs — and especially digital banks — face a key test as a broad decline in interest rates raises doubts about the sustainability of relying on this heightened income over the long term.
“An environment of falling interest rates may pose challenges for some fintech players with business models anchored to net interest income,” Lindsey Naylor, partner and head of U.K. financial services at Bain & Company, told CNBC via email.
Falling benchmark interest rates could be “a test of the resilience of fintech firms’ business models,” Naylor added.
“Lower rates may expose vulnerabilities in some fintechs — but they may also highlight the adaptability and durability of others with broader income strategies.”
It’s unclear how significant an impact falling interest rates will have on the sector overall. In the first quarter of 2025, Robinhood reported $290 million of net interest revenues, up 14% year-over-year.
However, in the U.K., results from payments infrastructure startup ClearBank hinted at the impact of lower rates. ClearBank swung to a pre-tax loss of £4.4 million last year on the back of a shift from interest income toward fee-based income, as well as expenditure related to its expansion in the European Union.
“Our interest income will always be an important part of our income, but our strategic focus is on growing the fee income line,” Mark Fairless, CEO of ClearBank, told CNBC in an interview last month. “We factor in the declining rates in our planning and so we’re expecting those rates to come down.”
Income diversification
It comes as some fintechs take steps to try to diversify their revenue streams and reduce their reliance on income from card fees and interest.
For example, Revolut offers crypto and share trading on top of its payment and foreign exchange services, and recently announced plans to add mobile plans to its app in the U.K. and Germany.
Naylor said that “those with a more diversified mix of revenue streams or strong monetization of their customer base through non-interest services” are “better positioned to weather changes in the economy, including a lower rates environment.”
Dutch neobank Bunq, which targets mainly “digital nomads” who prefer not to work from one location, isn’t fazed by the prospect of interest rates coming down. Bunq saw a 65% jump in annual profit in 2024.
“We’ve always had a healthy, diverse income,” Ali Niknam, Bunq’s CEO, told CNBC last month. Bunq makes money from subscriptions as well as card-based fees and interest.
He added that things are “different in continental Europe to the U.K.” given the region “had negative interest rates for long” — so, in effect, the firm had to pay for deposits.
“Neobanks with a well-developed and diversified top line are structurally better positioned to manage the transition to a lower-rate environment,” Barun Singh, fintech research analyst at U.K. investment bank Peel Hunt, told CNBC.
“Those that remain heavily reliant on interest earned from customer deposits — without sufficient traction in alternative revenue streams — will face a more meaningful reset in income expectations.”
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
Sign up for our weekly newsletter that goes beyond the livestream, offering a closer look at the trends and figures shaping the ETF market.
New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
What that means for consumer loans
Checks and Balance newsletter: Of God and MAGA
Why software stocks, 2026’s market dogs, have joined the rally
Armanino adds Strategic Accounting Outsourced Solutions
New 2023 K-1 instructions stir the CAMT pot for partnerships and corporations
