European fintech market forecasted to cool off

Yasmine Raso

Senior Journalist, Financial Newswire

13 October 2022

A new report from fintech venture capital firm, Finch Capital, has signalled expectations of “cooling and consolidation” across the European fintech sector.

The State of European FinTech report said investment in the sector will experience a slowdown back to levels recorded in 2018 and 2019, after new fintech business formation peaked in 2018 and has now declined in the last year by 80 per cent.

The report attributed this trend to the tightening macroeconomic conditions that have hit the sector hard after seeing strong growth in the last few years, with funding volume rising from approximately $6 billion in 2020 to $19 billion in 2021.

The total number of financial technology firms registered global also peaked at 966 in 2021 and global fintech investment hit US$210 billion, with cryptocurrency and blockchain-oriented businesses performing well.

“After many years of impressive growth, perhaps overheated, there is no doubt that a worsening macroeconomic situation and tightening money supply are weighing on the FinTech sector,” Radboud Vlaar, Managing Partner at Finch Capital, said.

“This doesn’t mean that funding has dried up, simply that investors are becoming more discerning and price sensitive. In fact, our research indicates that dry powder is at an all-time high, with $28bn of undeployed capital among Fintech investors.”

The report also highlighted how there is no question that the “undeployed capital” will be injected in the sector and now is the time for companies to show “healthy unit economics, opportunity and potential for growth”, to facilitate a “soft landing” for the sector.

“With investors becoming more cautious about where they put their money, and potentially overinvested start-ups struggling to exit, we are likely to see a period of consolidation in the FinTech space as many verticals are highly fragmented, creating a smaller but more sustainable ecosystem,” Vlaar said.