Stefano Ferace
Truffle Capital
INTRODUCTION
The rise of fintech firms has gained considerable momentum in recent years. According to forecasts[1], fintech sector revenues are set to grow three times faster than those of the traditional banking sector between 2022 and 2028, with an annual growth rate of 15%, compared to 6% for traditional banks.
In 2022, fintechs accounted for 5% (or between $150 billion and $205 billion) of global banking sector net revenues. This share is expected to double to over $400 billion by 2028.
This growth will be driven particularly by emerging markets such as Africa, Asia-Pacific (excluding China), Latin America, and the Middle East, whose share of global fintech revenues is expected to rise from 15% in 2022 to 29% in 2028.
In Europe and the United States, the rapid digitalisation of financial services continues to drive the growth of fintechs. In 2022, approximately 73% of global banking interactions took place via digital channels, signalling a major paradigm shift in banking relationships. Additionally, consumer trust in new entrants is growing. According to data compiled by McKinsey, 41% of retail banking consumers say they want to increase their use of services offered by fintechs.
Beyond financial services, fintechs are expanding their range of solutions, thereby increasing their revenue per customer and capturing more prospects. Consequently, more and more fintechs are reaching profitability.
BOX: North America accounts for half of global fintech revenues
The American fintech market has reached a size of approximately $4 trillion and is expected to grow at a compound annual growth rate (CAGR) of 11% in the coming years, according to Mordor Intelligence[2]. The United States is expected to account for more than 62% of the global value of fintech transactions by the end of 2029. In 2022, North America (primarily the United States) accounted for 48% of global fintech revenues. This share is expected to decrease to 41% by 2028, as emerging markets grow. The fintech market is now mature across the Atlantic, with 88% of Americans using fintech services. Digital payments are the main segment of the fintech sector in the United States, with a market value of over $1.2 trillion.
Key American players:
– Payments: Stripe
– Online Banking: Chime
– Blockchain: Ripple
Global Fintech Hubs
– United States: Payment technologies (Stripe and Square), cryptocurrencies, and blockchain
– China: Mobile payments, super-apps (Alipay, WeChat Pay), and peer-to-peer lending platforms
– India: Neobanks (Open), digital payments (UPI), and InsurTech (Riskovery)
– Africa: Mobile banking (M-Pesa)
– United Kingdom: Digital banks, neobanks, and RegTech
I European Mapping
– Digital and neobanks: United Kingdom, Germany, and the Netherlands
– Payments and financial flows: United Kingdom, Sweden, and the Netherlands
– Loans and credit: United Kingdom, Germany, and France
– InsurTech: United Kingdom, Germany, and France
– Wealth management: United Kingdom, Switzerland, and France
– RegTech: United Kingdom, Ireland, and Lithuania
– Blockchain and cryptocurrencies: Switzerland, Germany, and Estonia
In terms of the number of active fintechs, Central and Northern Europe stand out. In terms of funding and the number of companies, Germany is currently the leader in the fintech sector, followed by France, with 950 compagnies. The Netherlands is in third place with 850 companies.
Germany, with Berlin as one of the historical capitals of European fintech, is home to players such as the neobank N26, founded in 2013, and the payment specialist Raisin, created in 2012. Berlin dominates the German fintech market, attracting 66% of financing volumes[3] within the European Union. The main segments of the fintech market include payments, neobanks, InsurTechs, and cryptocurrencies.
– InsurTechs: Wefox, Element, Getsafe; Clark
– Brokerage: Trade Republic
– Neobanks: N26, Vivid Money, Kontist, Vivid
– Payments: Raisin, AirBank, Vivid, Billie
– Banking services: Mambu
France is the second-largest European fintech market with around 950 companies at the end of 2023[4]. French fintechs are particularly active in financing, banking services, risk and asset management, as well as emerging segments like web3, InsurTech, and impact finance.
– Credit: Younited Credit
– Neobanks: Qonto (leader of the Fintech 100 ranking)
– Payments: PayFit, Libeo
– Data security: Ledger
– Business services, accounting: Pennylane (new French unicorn in 2023), Swile
The Netherlands is home to more than 850 fintech companies, financial institutions, and tech companies, making it the second-largest sector in the EU and the third in terms of financing. Amsterdam hosts many major fintech events, such as Amsterdam Fintech Week and Money 20/20 Europe.
– Blockchain: Bitfury
– Neobank: Bunq, Knab
– Payments: Adyen, Mollie
– Financial transactions: Flow Traders, Ohpen, Terrapay
In 2022, fintechs in Belgium raised €105 million, lower than the €249 million raised in 2021. The record was set in 2020 with €374 million, mainly due to a large fundraising by UnifiedPost. In 2024, the Dutch fintech Levenue acquired the Belgian fintech Cake, simultaneously raising €8 million.
The Nordic countries, particularly Sweden and Finland, are now major players in fintech in Europe. Stockholm stands out as a leading hub, benefiting from a culture of early adoption of digital technologies.
– Payments: Klarna (Sweden)
– Digital banking: Lunar (Denmark)
– Investment and trading: Nordnet (Sweden)
– InsurTech: Insurely (Sweden)
Sweden emerged strongly in 2022 when, according to a McKinsey study[5], the Swedish ecosystem led EU countries in three segments: fintech creation, development, and financing. That same year, Swedish fintechs raised a total of €1.2 billion, accounting for 18% of the amounts raised in the Nordic countries.
This significant breakthrough was largely driven by Klarna. In July 2022, the startup specialising in payments in instalments managed to close a €639 million fundraising round, reaching a valuation of $45.6 billion. A few months later, the valuation plunged by 85% to $6.7 billion. The valuation is now around $20 billion as the group prepares for an IPO.
Outside of Europe, Turkey has more than 600 fintechs. In 2022, fintechs in the country raised $89.1 million, a 32% year-on-year increase[6]. The country stands out particularly in the payments sector, which represents more than half of the companies in the payments and banking-as-a-service sectors.
– Payments, BaaS: Finartz, Iyzico, Ininal, DG Pays
In Northern Europe, Lithuania also stands out, with more than 300 fintechs, employing some 7,400 people[7].
Poland is also emerging in the fintech ecosystem: over the past four years, the number of fintechs in the country has doubled, reaching more than 300 companies by the end of 2022[8].
The leading sectors include payments, financial management, and software providers (which alone account for 11% of the Polish fintech ecosystem). The country also stands out for its involvement in the development of digital assets. Poland is among the top 10
European countries in terms of the percentage of the population owning cryptocurrency wallets. More than one million people, or about 2.8% of the population, own them. At the beginning of 2023, the decentralised financial services system Woo Network joined the FinTech Poland ecosystem.
– BaaS: Vodeno, Nethone
– Financing: Wealthon, Allegro Pay
– Payment: BLIK
Finally, Spain is another significant country in the fintech space with 664 companies[9]. The number of players is growing, and the ecosystem is expanding. While the total investment volume in Spanish fintechs amounted to €222 million in 2022, down from €481 million raised in 2021, the activity of Spanish fintechs picked up in 2023[10].
Numerous major operations were recorded in 2023, including VeriDas (€16.4 million raised), MyInvestor (€16.1 million raised), Bit2me (€15.3 million raised), and Mitiga (€14.2 million raised).
II The new challenges for European fintechs
A – Financing
In terms of transaction value, the European fintech market is estimated at $3.6 trillion.
In July 2023, there were 272 unicorns among European fintechs, with a combined valuation of $936 billion, a sevenfold increase since 2018[11].
Among the unicorns are (2023-2024 figures):
– Klarna, Sweden, valuation: $20 billion
– N26, Germany, valuation: $3 billion
– Qonto, France, valuation: $4 billion
– Adyen, Netherlands, valuation: $28 billion
– Bunq, Netherlands, valuation: $1.6 billion
At the same date, publicly listed fintechs represented a market capitalisation of $550 billion, doubling since 2019.
While fintech financing increased by 177% in 2021 compared to the previous year, reaching $92.3 billion, it fell by 40% in 2022 to $55 billion. Notably, while growth-stage fintechs (Series C and beyond) experienced a funding drop of 50% in 2022, early-stage fintechs (seed and pre-seed) saw their funding increase by 26% in 2022. Additionally, during this period, some sectors proved more resilient than others. This is the case for B2B segments such as Banking as a Service (BaaS) and SME services. In 2022, funding for these two segments declined by 24% and 26%, respectively.
BOX: Evolving European regulation
European fintechs operate in a complex regulatory environment. The EU’s PSD3 Directive will introduce a new European framework for payment services. While compliance can be costly, particularly regarding data protection and payment security, PSD3 also presents opportunities. The harmonisation of rules between traditional banks and other payment service providers should help create a more balanced market. Additionally, the deployment of ‘open banking’ will allow third-party payment service providers to innovate and offer new financial services.
B – Incorporating sustainability into the business model
Amid constant focus on corporate practices in terms of environmental and social responsibility, fintechs with innovative offerings that include financially disadvantaged sections of the population and which are committed to responsible engagement will stand out. Sustainability must be natively integrated into business models and commercial strategies. Predictive analysis models – via alert systems –, personalised debt solutions – via customised repayment schedules –, as well as more empathetic and responsive customer support are all solutions that should capture the attention of financiers.
C – Exponential deployment of generative AI
According to Allied Market Research[12], the AI in fintech market was valued at approximately $8.23 billion to $10.1 billion in 2021. It is expected to reach $61.30 billion by 2031, with a compound annual growth rate (CAGR) of 22.5% from 2022 to 2031. Fintechs have now widely adopted these technologies and there is an array of ways in which such firms are harnessing AI: creditworthiness analysis, customer support, fraud detection, process automation, predictive analysis, and decision support.
Generative AI is now a real asset for fundraising. Indeed, tech companies that have carried out the largest fundraising rounds are those that place AI at the heart of their value creation.
[1] https://www.mckinsey.com/industries/financial-services/our-insights/fintechs-a-new-paradigm-of-growth#/
[2] https://www.mordorintelligence.com/fr/industry-reports/us-fintech-market
[3] https://fintech-consult.com/our-updated-report-on-fintech-in-germany
[4] https://bigmedia.bpifrance.fr/nos-dossiers/quest-ce-que-la-fintech
[5] https://www.mckinsey.com/industries/financial-services/our-insights/europes-fintech-opportunity
[6] https://www.advantisconseils.com/fr/blogs/les-fintechs-turques-ont-leve-89-1-millions-usd-en-2022
[7] https://fintechbaltic.com/7673/fintechlithuania/lithuania-new-2023-2028-fintech-strategy-puts-emphasis-on-quality/
[8] https://fintechpoland.com/wp-content/uploads/2023/03/FintechinPoland_2023.pdf
[9] https://www.teamfrance-export.fr/fiche-marche/retail-services-et-culture/services-financiers-et-fintech/ES
[10] https://fintech.global/2023/09/02/spanish-fintech-defies-global-trends-in-2023-deal-activity-set-to-grow-by-21/
[11] https://www.mckinsey.com/industries/financial-services/our-insights/fintechs-a-new-paradigm-of-growth#/
[12] https://www.alliedmarketresearch.com/ai-in-fintech-market-A16644
