Trends Watch: European FinTech

EisnerAmper’s Trends Watch is a weekly entry to our Alternative Investments Intelligence blog, featuring the views and insights of executives from alternative investment firms. If you’re interested in being featured, please contact Elana Margulies-Snyderman.  

This week, Elana talks with Radboud Vlaar, Managing Partner, Finch Capital.

What is your outlook for investing in European fintech?  

We expect 2023 and the first half of 2024 to be a transition year, with funding dropped by 70% to pre-2020 levels driven by the end of mega round and flight to quality. We see a shift in focus, where historically the focus was on challenger banks and payments, and we expect a consolidation in these segments and more focus on B2B financial software. Ecosystem wise, we have seen U.S., Asian and strategic investors are retrenching, being in 50-100% less deals than last year, making the European companies more dependent on the European-headquartered investor firms. M&A has remained stable with volumes on track to match 2022 levels, but deal sizes have fallen dramatically with 19% of deals above €500m versus 30% last year and we expect this to come back in 2024 including IPOs on the back of hopefully successful listings of ARM and Instacart. Valuations are stabilizing in the public markets which will help private companies to get funding/exits, but at different terms than before, which will take time before all companies reset “bid versus ask price" to "current" valuations.

Where do you see the greatest opportunities and why? 

The trend of a shift to software and B2B fintech continues in 2023. More than 50% of all fintech deals are B2B software versus 17% in 2016. Key areas where we see most opportunities next 12 months are:

• Revisit of the payment investment landscape, with accelerated consolidation expected to boost profitability and growth.
• Regtech continues to show attractive growth in know-your-customer (KYC) and anti-money laundering (AML);
• Consolidation in open banking and banking as a service continues;
• Generative artificial intelligence will get at scale in insurance and banking; and
• Automation and digitalization of the chief financial officer (CFO) and human resources (HR) function continues to increase control and efficiency.

What are the greatest challenges you face and why?

Spread in bid and ask price to get funding and exit momentum back.

What keeps you up at night?

The opening of an exit market and regain of trust in the future by public and private investors.

The views and opinions expressed above are of the interviewee only, and do not/are not intended to reflect the views of EisnerAmper.