As the economy continues to falter globally due to the COVID-19 pandemic, uncountable businesses and jobs are on the line. Layoffs and salary cuts have already started happening, and people fear that the worst is yet to come.
In order to track and assess the health of the European fintech ecosystem, Amsterdam-based Finch Capital has come up with its annual State of European fintech report for the current year (2020). This report informs about a range of topics impacting the fintech industry including; where the sector is currently; the impact of COVID-19; the M&A conundrum; and trends. This follows an analytical report published in April of this year titled ‘FinTech: The Future Post CV-19’.
Brace for impact
Radboud Vlaar, managing partner at Finch Capital says, “Although the 2020 situation looks good at first glance, European Governments have provided a huge amount of support for fintech startups. This support offset the decline in institutional funding but this was a one-off initiative.
In the next six to 12 months, startups and scale-ups will face a harsher market test for raising additional funding due as the government funding slows and VCs funds get maxed out, focusing remaining fund capacity on their winners.”
Here are some of the key findings of the State of European fintech report for 2020
- Overall, fintech is a resilient European tech growth engine for now. European fintech funding by VCs and PE firms in H1 2020 is reported to be down by around 10%, but when corrected for Government funding it is up 20%. This is because the funding databases only record publicly announced equity rounds, while most government funding went in as a convertible debt note and so was not disclosed.
- As per the Finch Capital team, the impact of the lockdown on the fintech sectors was in line, except for payments and mortgages that both went up, contrary to what they had predicted. For payments, travel rebounded faster than expected and ecommerce skyrocketed 210%, as brick and mortar shops closed and people were stuck at home.
- Challenger banks (less travel and FX) and Commercial Real Estate (drop-in use of offices, shops, etc). Trading firms benefited from the volatility, and InsurTech and Enabling fintech (such as AI) performed as expected with continued strong demand for digital solutions.
- Analysis of the top 50 European fintech hiring and firing, showed startups took this chance to reevaluate cost inefficiencies. With the help of government support programs, they reduced headcount on sales teams, given limited in-person sales meetings, and increased customer support.
- The team expects the next 12 months to be dynamic as raising funds could become more selective and may drop in Q4 and 2021. This will be a harsh reality for the many shake out and down round candidates whose runway got extended into 2021.
- European fintech M&A momentum hindered by lack of big bold buyers and fragmentation: Despite the M&A boom in the US, Europe lacks big-ticket M&A buyers for fintechs, and challenger banks in particular.
According to the report, cracking the exit path of the challenger banks, the rise of global privacy, and the consolidation of fragmented players are some of the big trends that will shape 2020. The report also predicts that there will be a lot of opportunities in the sector with a new focus on profitability.
As per Vlaar, a shakeout of the European fintech is not necessarily bad. In the last five years Europe has seen 100,000s of new companies raise massive amounts of capital, build and sell new products to meet a market need.
“Sometimes hundreds of companies are trying to solve a similar problem in different countries. This creates an opportunity for investors to invest in consolidation winners at attractive prices and make profitable companies so that these companies can become acquisition targets for Private Equity firms,” adds Vlaar.
About Finch Capital
Finch Capital is an early stage venture capital firm with focus mainly on the FinTech sector in Europe and South East Asia.
The firm has a track-record since 2014 of backing future champion companies including Aylien, BUX, Brickblock, Brytlyt, Fixico, Fouthline, Goodlord, and Grab among others.
Finch Capital consists of a team of 12 investment professionals with wide entrepreneurial experience (e.g. Adyen and Arista), prior investment experience (e.g. Accel, Atomico, Khazannah) and industry backgrounds (e.g. Facebook, Google and McKinsey), located across offices in Amsterdam, London and Jakarta.
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