According to Finch Capital report, fintech proves its resilience as Europe’s prime tech sector

Today, Finch Capital released the tenth edition of its State of European Fintech Report, offering a detailed snapshot of funding flows, deal activity, and emerging trends shaping the sector in the first half of 2025. 

Some of its key findings: 

London is king for fintech venture funding

While a greater concentration of funding is prevalent across European regions amid an overall drop in total funding, this lack of diversification, however, highlights the UK’s dominance, netting 56 per cent of total funding, 79 per cent of which is concentrated in London.

At a national level, the UK maintains greater scale and diversity than its European counterparts, being the only region whose top two deals constitute less than 50 per cent (45 per cent compared to 56 per cent and 84 per cent) of total funding. This is despite its top two deals as a percentage of total funding having increased the most (2.8x compared to the second most, 1.4x). 

The UK’s drop in total fintech funding is also the least in the region (47 per cent compared to the second least, 64 per cent). London’s standout success can be attributed to homegrown fintech stars such as Monzo and Revolut, and its rich payments ecosystem.

France is a fintech challenger to London

Germany, France and other markets are driven largely by one or two significantly sized deals in AI-driven compliance, wealthtech, and capital markets data analytics. While Germany’s median deal value is up 189 per cent YOY, its volume count is 27, lagging behind France’s 38. 

The data makes France Europe’s strongest challenger market to London, albeit attracting only half the investment of Germany. And bigger deals loom on the horizon during the remainder of H2 2025. 

In the Netherlands, the top two 2025 deals to date represented 90 per cent of its overall funding, with FINOM Payments SME services attracting €115m. A groundswell of opportunity, however, lies in Crypto and Stablecoin infrastructure, and regtech for digital assets, if regulatory clarity improves. NL held 4 per cent of the European fintech funding value in H1 2025, just pipping Ireland and Poland (both 3 per cent) to fourth place.

These figures speak to considered and confident investment decisions, funnelling capital into established entities, courting longevity and staking a hefty claim on the continued momentum of the market.

Aman Ghei, Partner, Finch Capital, says: 

"The fintech vertical is the most important sector in Europe. Having undergone its own transformation 2-3 years ago, the quality of companies and entrepreneurs that are burgeoning from the ecosystem sets itself apart from other verticals.

They are the first to implement new technologies, enable AI infrastructure in their products and build profitable businesses at scale.” 

Volume trumps value

European fintech companies constituted a quarter (25 per cent median) of all VC/Growth deals done by the top global technology investors in Europe in the six months to H1 2025, and looks to be re-setting its status as prime asset class for the longer term, given the steady rise from 18 per cent of total deal value in 2024 to 23 per cent in H1 2025. Fintech investment up 23 per cent.

While the overall number of deals is down 32 per cent YOY from H1 2024, overall capital invested in fintech is up 23 per cent to €3.6bn within the same period.  Within this, the hotbed of activity lies in the €100-500m M&A transaction range.

The total volume of these is 5.3x that of the €500+ range and constitutes the greatest differential to date, indicating great investor appeal and significant potential for fintech founders.

US investment in European fintech now accounts for 28 per cent of all transactions

According to the report authors, the consistency and stability in European trading is a key draw after the volatility brought about by President Trump’s election and subsequent decisions.

This figure runs above the median figure for US investment since 2018. Furthermore, Europe’s exit market is quietly robust, with a pipeline almost half full of fintech.

Question marks remain over the US, still attracting major future listings, but an IPO backlog of 47 per cent is a clear reflection of a sustained, buoyant fintech ecosystem.

Engineering teams are shrinking due to software optimisation

AI-based start-ups and scale-ups account for 21 per cent of deal volume in European fintech (up from 16 per cent in 2024), but only 7 per cent of deal value in H1 2025. 

However, a closer look at R&D teams in the report reveals a stark stemming of growth in engineer teams since 2022 when there was a 20 per cent increase in net new hires in R&D at top fintech firms. This fell to 14 per cent in 2023, 9 per cent in 2024, and it is expected to be a mere 2 per cent by the end of 2025. Firms are optimising activities, focusing on computer engineering- fine-tuning existing models, maintaining and integrating, rather than building.

According to Aman Ghei, Partner, Finch Capital, “firms don’t have resources to develop their own models, per se, hence they need to use what’s out there, putting their own wrapper on it. 

“That is what’s happening in the market today and what probably will happen for the next year or two.

Replacing front-end engineers, the biggest job posting out there is prompt engineer-- someone who interacts with language models to get the best output possible from an engineering perspective. Now, you don’t have to worry about needing as many engineers to grow your business.”

AI’s fortifying force

AI strongly features in software focused on modification and cost-saving, as seen in Wealth Management and Underwriting. 

For example, genAI in wealth management is improving margins rather than generating return. Forty-eight per cent of wealth managers are already investing in AI, with client experience and enhancements (69 per cent), task automation (62 per cent) and cost reduction (56 per cent) the top three incentives.

Underwriting is where the greatest revenue gains and cost reductions across functions are to be had for insurance firms embracing AI. Using AI increases the value in underwriting to 36 per cent, from a mere 10 per cent.

Interesting to note, at this time, there is zero value (0 per cent) to be gained from AI implementation in insurance Procurement, Legal or product management. The report projects that in the space of two years from 2024 to 2026, the number of lenders piloting or scaling AI for loans will have almost doubled, from just over 35 per cent to just under 70 per cent. 

Even more stark, in the same timeframe, the report predicts the use of AI could replace manual loan underwriting completely for those that use it, shortening the average cycle from 12 days in 2024 (entirely manual) to 2.5 days (entirely AI).

Sebastien Marchon is the CEO of Belgium HQ’ed Rydoo, which recently acquired Nordic fintech Semine. He agrees that fintech has matured in Europe and investor confidence is growing, including from US investors; however, more private capital is needed to keep pace with the UK.

“Investors are showing confidence in European fintech as a resilient asset class and betting on a strong pipeline of IPOs, underscoring the region’s position as a fintech powerhouse.  

However, the UK is dominating Europe with more funding deals and greater diversification. The EU needs to do more to stimulate private capital investment in promising early-stage fintechs.”