BY Fraser Tennant
Despite remaining resilient during months of coronavirus (COVID-19) lockdown, European FinTech companies are likely to see a fall out in 2021, according to a report published today by Finch Capital.
In its annual ‘State of European FinTech report for 2020’, Finch Capital analyses the key issues impacting the FinTech industry, such as the impact of COVID-19, the outlook for M&A activity and the trends that will shape FinTech in the months and years to come.
"Although the 2020 situation looks good at first glance, European governments have provided a huge amount of support for FinTech start-ups,” said Radboud Vlaar, managing partner at Finch Capital. “This support offset the decline in institutional funding, but this was a one-off initiative. In the next six to 12 months, start-ups and scale-ups will face a harsher market test for raising additional funding due as the government funding slows and venture capitalist (VC) funds get maxed out, consequently focusing remaining fund capacity on their winners."
The report’s key findings include: (i) the impact of the lockdown on FinTech sectors was in line with predictions, except for payments and mortgages that both went up, contrary to what was predicted; (ii) European FinTech M&A momentum is being hindered by a lack of big buyers and fragmentation, with Europe lacking big ticket M&A buyers for FinTechs, and challenger banks in particular; and (iii) big trends that will shape FinTech in 2021 range from cracking the exit path of the challenger banks to the rise of global privacy and consolidation of fragmented players.
“A shakeout of European FinTech is not necessarily bad,” said Mr Vlaar. “In the last five years, Europe has seen 100,000s of new companies raise massive amounts of capital, build and start selling 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 consolidate and back winners at attractive prices and make profitable companies,” he continued. “These companies then become acquisition targets for private equity (PE) firms and large industry incumbents”
The report concludes by noting that with fundraising becoming more selective and dropping in Q4 2020 and 2021, harsh reality is on the horizon for European FinTech.
Report: ‘State of European FinTech report for 2020’