Research
3 October 2024
State of European FinTech 2024 - UK Dominates, Midsized M&A Thrives, and Funding Crisis Spurs Sustainability
2024 continued to been a turbulent year for European FinTech. Although funding continued to decline, the sector is much more resilient with some green shoots on the horizon. European FinTech continued to have a thriving mid-market M&A almost the same size as the US, but as one of Europe's largest sector, it needs to prove it can consistently exit unicorns. The UK dominates the European ecosystem even more now, with 65% of the funding landing in the UK
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Key highlights:
Funding dropped by 25% as fewer deals came to market and less funding is required post the focus on profitability;
UK Dominates, while Netherlands and Nordics remain resilient, and Governments are stepping up their role to continue to provide funding to the ecosystem - Ireland, Germany, France and Spain have seen large govt initiatives to fuel growth in 2025
Higher interest rates resulted in record profits for Challenger Banks and attracted large rounds (Monzo, Revolut) which gave a boost to funding combined with the end of the crypto winter;
Growth companies with higher EBITDA margins achieve higher revenue multiples (10x+), More emphasis is now placed on EBITDA margin than revenue growth;
Unicorn chasing is subdued, with a strong European market for low to mid market M&A almost similar in size versus the US while large cap being 2-3x smaller;
Battle is on with incumbents as they are hiring in tech much more aggressively than FinTechs
AI has taken the FinTech sector by storm, with several public announcements from insurers or BNPL players on the success they have had in implementing these solutions
Fintech sector beginning to see jobs market recover in Europe, up 10% YoY.
The next wave of fintechs is shifting from unicorns to 'half-a-corns,' with £500m valuations becoming the new benchmark: said Aman Ghei, Partner at Finch Capital.
European Picture
Overall, the 9th edition of the annual report found that although it remains a challenging environment for European fintechs, there are clear signs of brighter prospects ahead.
While the UK leads the way, the Netherlands showed resilience, with investment volumes holding steady. Meanwhile, Ireland, Germany, and France all saw major government-backed initiatives aimed at fostering growth through 2025, signalling strong long-term commitment to the local technology ecosystems.
Despite a notable contraction in funding across Europe, some key sub-sectors helped by higher interest levels, such as challenger banks like Revolut and Monzo, are beginning to show profitable growth.
Higher Rates and Boosted Profit
The report revealed that total capital invested in European fintechs in the first half of 2024 fell by 25% YoY, from £3.2 billion in H1 2023 to £2.4 billion in H1 2024.
However, profitability in sub-sectors like banking is driving larger funding rounds, with the top challenger banks generating close to £600m in profit in 2024 compared to a £125m loss in 2023.
As these banks emerge as success stories, the UK has become a hub for profitable growth, while other European nations work to adapt, the report found.
Mid-market Fintech M&A Thrives
The report also highlighted the increasing activity in the mid-market M&A space across Europe which is benefiting from consolidation in the sector.
Funding rounds for fintech unicorns have slowed, the findings show, with investors prioritising companies with solid financial fundamentals and avoiding overly ambitious valuations based on hyper growth and unproven profitability.
European exits under £500 million now account for 32% of global M&A activity, although the market remains 2-3x smaller than the US for larger deals, according to the report.
AI Creating Efficiency
The report also found that the industry is expected to benefit significantly from the adoption of AI technologies in the coming years, particularly in the insurance sector.
According to research, 4 out of 5 actuaries are now using AI to improve risk analysis and pricing models and 65% of executives say they will invest more than $10 million in AI in the next 3 years, making the industry more efficient.
The challenges that fintech faced in 2023 were necessary for the sector to mature and become more sustainable. While funding may be down overall, and unicorn chasing has slowed, there is plenty of opportunity for companies that are capital efficient and have a clear path to profit.
With AI transforming the industry and significant dry powder still available, the next 12-18 months will mark a turning point for fintech in Europe. The next wave of fintech success stories will likely be built on sound financials rather than rapid revenue growth alone.
said Aman Ghei, Partner at Finch Capital, commenting on the findings.