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European fintech firms search for opportunities in 2023
Like virtually every other industry, the European fintech ecosystem has been massively impacted by the spread of COVID. Some fintechs that were well-placed to offer valuable services during the pandemic and post-pandemic landscape rapidly grew, while others saw major slowdowns.
Take, for example, Amsterdam-based payments processor Mollie. This almost 20-year-old fintech managed to come into its own during the pandemic and raised $800 million in funding in June 2021, reaching a valuation of $6.5 billion.
European countries including Germany and France are catching up to the fintech sector in the United Kingdom, with these two nations reporting higher increases in funding compared to the UK in 2021. According to research from McKinsey, European fintech firms have a collective value of around €430 billion, as of June 2022.
Data from Forbes finds that European fintech firms achieved $19 billion of funding in 2021, up from $6 billion in 2020. However, this funding is unevenly distributed across the region, with Sweden seeing fintech funding per capita hit €170 million, compared to just €4 million in Italy and €5 million in Belgium.
The Swedish fintech ecosystem is one of the strongest in Europe, with firms like Klarna, Lendify and Tink all raising major funding in the midst of a global pandemic. With the vast majority of people in Sweden having switched from cash to cards in recent years, it’s not hard to see why the country may soon become a genuinely cashless society.
The shifting regulatory system across Europe has bolstered the fintech space in recent years. From the rise of open banking and PSD2, regulations have enabled new companies to be founded that challenge slow-moving incumbents. Customers of fintechs report that pricing, easy access, quick service and quality are the main reasons they use these services. In the end, customers will see the most benefits from collaboration between start-ups and financial institutions, as they will be able to access innovative products that can better meet their needs.
While there are some regional differences, European countries on the whole are more than happy to embrace the offering of financial products from non-traditional players. Growing numbers of citizens with access to smartphones and internet services are set to further boost the fintech space in Europe, with digital literacy also seeing some increases across Europe.
Jeff Parker, Managing Director of Marqeta International, believes innovation is accelerating for two key reasons. He says: “Firstly, the introduction of PSD2 in 2019 aimed to foster a more democratised approach to banking and payment services in the UK and EU. Secondly, the pandemic sped up the adoption of digital payments tools across consumer and business audiences. These two factors have proved to be pivotal for fintech in many parts of Europe.
London remains the European centre for fintech but several nations, including Malta and Lithuania, have taken the opportunity of Brexit to promote themselves as an alternative space for fintech firms looking to make it big. As new fintech firms are created, the value of gaining an European entry point by starting in a EU country may prove to take funding away from the City.
Different areas of the fintech ecosystem are also expected to see different levels of success, with embedded finance continuing its growth, whereas BNPL and crypto platforms will have to contend with new regulations that may limit growth.
Dozens of European unicorns have been created in the past few years, with many more on track to become unicorns in the near future. There are clearly challenges to overcome in 2023 when it comes to raising financing, gaining a foothold in competitive markets and finding talented staff. But, for the fintechs that find their niche, the rewards can be significant.
However, as Parker cautions, “Innovators are now under pressure to build, launch and iterate products more quickly than ever before. Success for many will depend on choosing ecosystem partners capable of supporting their development ambitions. Get this part wrong and it could be a costly error, as there’s a risk that competitors might nudge ahead with superior propositions and eat into their market share.”
We are so excited about developments in fintech hubs across Europe that we are setting off on the inaugural Fintech Talents Road Trip with stops in Paris (17 April), Stockholm (19 April) and Berlin (21 April). With content and a fantastic speaker line up curated to educate and inspire on each leg of the journey, it promises to be the fintech trip of the year.
Road Trip stops:
17 April – Paris
19 April – Stockholm
21 April – Berlin