According to an extensive update by Finch Capital, 2024 continued to be a turbulent year for European Fintech.
While funding levels continued to decline, the sector is now said to be more resilient, with certain “green shoots” now emerging.
As noted in the latest research report, European Fintech continued to have solid mid-market M&A nearly the same size as the United States. However, as one of Europe’s largest sectors, it needs to prove it can “consistently” exit unicorns.
According to the research study, the UK currently “dominates” the European ecosystem even more now, with 65% of the funding landing in the United Kingdom alone.
Key highlights shared by Fitch Capital in the ecosystem report:
- Funding dropped by 25% as fewer deals came to market, and less funding was required post the focus on profitability;
- UK Dominates, while the Netherlands and Nordics remain resilient, and Governments are stepping up their role to continue to provide funding to the ecosystem – Ireland, Germany, France and Spain have seen large govt initiatives to fuel growth in 2025
- Higher interest rates resulted in record profits for Challenger Banks and attracted large rounds (Monzo, Revolut), which gave a boost to funding combined with the end of the crypto winter;
- Growth companies with higher EBITDA margins achieve higher revenue multiples (10x+); more emphasis is now placed on EBITDA margin than revenue growth;
- Unicorn chasing is subdued, with a strong European market for low to mid-market M&A almost similar in size versus the US, while large cap being 2-3x smaller;
- Battle is on with incumbents as they are hiring in tech much more aggressively than Fintechs
AI or artificial intelligence has now reportedly taken the FinTech sector by “storm,” with several public announcements from insurers or BNPL service providers on the “success” they have had in implementing these solutions.
As stated in the comprehensive report, the Fintech sector beginning to see jobs market “recover” in Europe, up 10% YoY.
According to Aman Ghei, partner at Finch Capital, the “next wave” of Fintech is shifting from unicorns to ‘half-a-corns,’ with £500m valuations becoming the benchmark.
Notably, the report revealed that while the environment for European fintech remains difficult, there are signs of some prospects ahead.
While the UK led the way, the Netherlands showed resilience, with steady investment volumes.
And, Ireland, Germany, and France all saw government-backed initiatives aimed at supporting growth through 2025, signaling fairly solid long-term commitment to the local technology ecosystems.
Despite a contraction in funding across Europe, specific sub-sectors helped by higher interest levels, such as challenger banks like Revolut and Monzo, are beginning to show “profitable growth.”
The report further revealed that total capital invested in European fintechs in the first half of 2024 declined by around 25% YoY, from a sizeable £3.2 billion in H1 2023 to £2.4 billion in H1 2024.
However, profitability in subsectors such as banking is driving larger funding rounds, with the major challenger banks generating nearly £600 million in profit in 2024 compared to a substantial £ 125 million loss in 2023.
As these banks emerge as so-called “success” stories, the UK has become a hub for profitable growth, while other European countries work to adapt, the report revealed.
The research report also pointed to the growing activity in the mid-market M&A space across Europe which appears to be taking advantage of the consolidation in the sector.
The research study findings revealed that funding rounds for Fintech unicorns have slowed. Investors prioritize firms with solid financial fundamentals and avoid “overly ambitious” valuations based on “hyper growth” and unproven and /or unrealized profitability targets.
The report concluded that European exits under £500 million currently account for 32% of global M&A activity, even though the market remains 2-3x smaller than the United States for larger deals, according to the report.