2024 continues to be a challenging year for European fintech companies, with funding levels experiencing a significant decline.

In H1 2024, European fintech companies raised EUR 2.9 billion (US$3.2 billion), representing a 24% decline from EUR 3.8 billion (US$4.2 billion) in the same period the prior year, according to a new report by Finch Capital, a Dutch growth capital firm. The number of deals also fell, declining by 19% to 443 rounds.

Valuations remained under pressure, as flat and down rounds accounted for 25.2% of all deals in H1 2024, up from 19.7% in H1 2023. This trend further reflects the challenging fundraising environment.

Regional trends

In H1 2024, the UK remained the dominant player in the European fintech landscape, accounting for 65% of capital raise, up from 58% in H1 2023. Meanwhile, fintech sectors in the Netherlands and the Nordics showed resilience, with funding levels remaining stable despite broader market difficulties.

2024 is also seeing more emphasis on profitability than revenue growth, a trend that’s driving the development of a thriving low- to mid-market mergers and acquisitions (M&A) ecosystem in Europe. Notably, the share of Europe on global M&A deals under EUR 500 million (US$549 million) rivaled the US in size in H1 2024 at 32%. In contrast, the US share of similar exits has shrunk over the past years, declining from 49% in 2021 to 35% in H1 2024.

Digital banks: the bright spot for European fintech

Despite the challenging fundraising climate, digital banks are emerging as a standout area in the European fintech sector this year. According to Finch Capital, banking was the favored fintech verticals in H1 2024, attracting the majority of capital despite being ranked fifth in terms of deal count. This indicates that large rounds led much of the sector’s funding activity.

According to Finch Capital, large rounds of fundraising in the banking sector over the past year have been driven by record profits by challenger banks. Top challenger banks in the UK generated nearly GBP 800 million (US$1 billion) in profit in 2023 compared to just GBP 28 million (US$37 million) in 2022. These strong financial performances have made the UK a hub for fintech funding, with success stories like Revolut, Monzo and Atom Bank contributing to this trend.

Monzo, for example, has raised north of US$610 million in 2024. Monzo claims it is the 7th largest bank in the UK, boasting more than 10 million customers. The digital bank achieved its first full year of profitability in 2024, reporting a pre-tax profit of GBP 15.4 million (US$20.5 million) for the financial year ending March 31, 2024. Monzo is now looking to expand its presence internationally, particularly in the US.

Atom Bank also delivered its first year of operating profit in fiscal year 2023, with operating profit rising to GBP 27 million (US$35.4 million), up from GBP 4 million (US$5.2 million) last year. Founded in 2014, Atom Bank was the first online bank to be granted a full UK regulatory license. Between 2018 and 2023, the bank’s customer base increased significantly, reaching 224,000 in March 2023.

Revolut, meanwhile, delivered record profits and revenue growth in 2023, with group revenue increasing by 95% from US$1.1 billion in 2022 to US$2.2 billion. Profit before tax was US$545 million, and net profit grew to US$428 million, up from US$7 million in 2022. Revolut operates in more than 40 markets globally and claims more than 45 million customers, making it one of the most prominent digital banks in the world.

Outlook for 2025: AI drives growth, BNPL rebounds

Looking ahead to 2025, Finch Capital anticipates several key trends that will shape the European fintech landscape.

In particular, the firm expects continued adoption of artificial intelligence (AI), especially in the insurance sector. According to research, four out of five actuaries are now using AI to improve risk analysis and pricing models and 65% of executives say they will invest more than US$10 million in AI in the next 3 years. This technology is expected to make the industry more efficient.

Another emerging trend is the resurgence of buy now, pay later (BNPL). At the beginning, BNPL was largely restricted to e-commerce. However, the payment method is now gaining traction in physical stores such as grocery stores, restaurants as well as gas stations. Furthermore, improvement in risk management, driven by AI, have helped BNPL firms enhance their lending standards, improving profitability among BNPL players, Finch Capital says.

Swedish BNPL giant Klarna, for example, said in August that it posted a profit in H1 2024, reporting an adjusted operating profit of SEK 673 million (US$66.1 million) in the six months through June 2024, up from a loss of SEK 456 million (US$44 million) in the same period a year ago. Revenue, meanwhile, grew 27% year-on-year to SEK 13.3 billion (US$1.3 billion). Founded in 2005, Klarna is a leading BNPL player boasting over 31 million monthly active users.

Finch Capital also notes that the fintech sector is beginning to see signs of recovery in the job market. Incumbents, in particular, have been hiring en masse, with HSBC, Mastercard and American Express adding more than 700 employees to their engineering teams over the past 12 months. Among digital leaders, Stripe and Revolut were the most active in hiring, expanding their engineering teams by 457 and 320 employees, respectively, during the same period.

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