If you didn’t tune in to our ‘To The Point’ event last week about the state of the fintech industry here in Europe, don’t worry.
You can still download our recent report on the topic free of charge. Put together in partnership with Oleg Boyko’s international investment group, Finstar, the report will give you unparalleled insights into how one of Europe’s premier business verticals is faring in these COVID-19 times.
We are happy to share some key learnings from the event, which featured discussions with a number of leading fintech executives and investors from across Europe.
We kicked off the event by presenting some new data that’s not in the report, so I figured it would be good to simply share the slides here. The full-screen button is your friend.
What the slides show is a couple of observations about the impact of COVID-19 on the (European) fintech sector, outlined in more detail in this article, and some top line numbers about the industry’s recent growth.
To wit, that means record funding in 2020: nearly €10 billion in total financing for European fintech startups and scale-ups for the year, across close to 500 deals.
As Mr. Oleg Boyko, founder and chairman of Finstar, put it in the report:
“The COVID-19 crisis has brought forward a lot of changes in the world, altering the way we work, shop, collaborate and move around. As this report shows, many trends that have been accelerated by the coronavirus pandemic have in fact proven to be beneficial to the European fintech industry. Around €10 billion of funding was raised by fintech startups and scale-ups in Europe throughout 2020, and we’re seeing bigger rounds, bigger companies, and bigger ambitions. This report demonstrates that the European fintech sector is in good shape, and Finstar is looking forward to invest in the future leaders in this space.”
Much like tech financing in Europe in general, the rounds are not increasing in number significantly over time, but the total investment volume is, which means that the average/medium size of fintech funding rounds in Europe is growing.
The presentation also shows that the UK continues to drive the market, by a margin, with over 600 financing deals between 2017 and 2020, and nearly €13 billion in total raised within that timeframe. For comparison’s sake, Germany clocked around 200 deals during the last four full calendar years, with €4.8 billion raised in total.
Exits, however, remain scarce – which is likely a result of the increase in capital injections in the first place, as European fintech companies are opting to stay private and independent for longer than they otherwise could.
When we asked our first set of panelists about the rise of fintech funding in Europe, it certainly sparked an interesting discussion from the get-go.
Anastasija Oleinika, the CEO of Latvia-based peer-to-peer lending giant TWINO, said the rise of funding is not a surprise, but made the observation that a lot of money is flowing to companies in the space that are yet to make or report a profit, questioning the health of their business fundamentals.
She even went as far as to suggest there may be a bubble, with venture firms continuing to invest in some companies to ‘save’ their balance sheets.
This was countered by Antoine Nougué, the Head of Commercial at Checkout.com (Europe’s most valuable private fintech company), who pointed out that his employer has been profitable pretty much from day one. He also observed that some of the companies being invested in, particularly in the B2C space, are spending cash on user acquisition and growth now, to focus on profit at a later stage.
Dr. Verena Thaler, VP Business Development and Strategy at Raisin, echoed that sentiment but also pointed out that a lot of the major funding rounds are going to startups in the payments sphere given the shift in behaviour and the digital transformation. However, she does expect interest in other ‘fintech-powering’ services to grow in the future.
All three agreed that it’s not easy for European fintech companies to ‘make the jump’ to the US or other parts of the world, and that expansion outside of Europe is not an easy feat; that Brexit has made some aspects of the industry more complex; and that market conditions within the continent itself are already difficult enough with the varying regulations.
Another interesting observation is that the ongoing digital transformation of the traditional banking and other financial services companies is actually a good thing for fintech startups and scale-ups, as it makes them easier to partner with – rather than fiercer competitors, they become stronger enablers across the value chain. Both Nougué and Thaler posited that it’s ultimately good for everyone – end customers not in the least – that there’s an accelerated wave of digitalisation in the sector.
TWINO CEO Oleinika noted, however, that there’s still not terribly much innovation coming from the traditional banks, as they continue to struggle to balance rigid regulation with the fast-increasing digital needs of their customers.
When we get to the other side of the coronavirus pandemic, most of the change that we’re observing now will be lasting, Nougué and Thaler agreed, which means we are not likely to go back to the way things were in the past.
Oleinika was less convinced about this, and said there may be some ‘overreaction’ and ‘overcompensation’ now, and there will likely be a slowdown in the pace of digitalisation post-COVID-19. She also identified a risk in the interconnectedness of the fintech ecosystem(s) in Europe, which risk making some companies too dependent on their partners.
In terms of what else to expect in the future, the consensus was: an evolving regulatory environment with more harmonisation across countries, more cooperation between traditional financial services industry players and fintech innovators, and an increase in funding yet again this year.
We also had the pleasure of talking about the state of European fintech with Eileen Burbidge, founding partner at Passion Capital and the British Treasury’s “special envoy” for fintech, and Dr. Ricardo Schäfer, a partner at Target Global and an early investor in Revolut.
Neither was surprised about the growth and resilience of the European fintech scene that is also showcased in our report, as they both see funding rounds and valuations increasing across the board. Or, as Schäfer put it: “The market is absolutely hot. It’s crazy.”
Burbidge commented on Anastasija Oleinika’s earlier comment on the profitability of some of the companies that are raising lots of funding, pointing out that as a pre-seed fund they typically invest in companies that are yet to turn a profit. She’s not worried about the prospects of those companies, however, as there is a lot of room and space for continued growth in the sector.
Schäfer echoed the sentiment, adding that 2020 was probably also a good year in the sense that it was a catalyst for certain companies to examine their cost structure and perhaps ‘trim some of the fat’, and refocus on the fundamentals.
Passion Capital’s Burbidge said there is still a lot of opportunity in terms of fintech startups servicing other companies in the space (whether they are other fintechs or traditional players and incumbents). One of the biggest areas that are ripe for innovation, in her view, is regulatory compliance, which is still expensive and complex even in Europe, particularly for smaller companies.
Schäfer also said there’s still a lot of room for companies to help ‘ordinary’ people make more money and manage it in a better way, for financial services and access to investments to be democratised, and help bridge the equality gap and make more people financially literate.
We will also likely see more disruption in the banking-as-a-service space, both agreed, a trend that we also observed in our recent report.
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