UK FinTech sector dominates Europe with 65% share of all deals in H1 2024

By Gloria Methri

The UK has further solidified its dominance in the European FinTech sector, capturing a remarkable 65% share of all deals in the first half of 2024, according to a new annual report analysing the sector.

The annual State of European Fintech report by Finch Capital highlights a year marked by turbulence, with overall funding in European FinTech declining by 25% year-on-year. Despite these challenges, the UK’s robust performance underscores its position as a thriving hub for investment and innovation.

The report highlights the sector’s ongoing challenges, noting that higher interest rates, a focus on cost efficiency and increased scrutiny of business model sustainability have driven the UK to account for around 65% of FinTech deals in Europe.

Funding in the UK FinTech sector rose 3% YoY to £2.2 billion compared with £1.9 billion in H1 of last year. The largest deal done in Europe in H1 was the UK’s Monzo, which raised £500 million in equity.

European Picture

Overall, the 9th edition of the annual report found that although the environment for European FinTech remains challenging, 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 a solid long-term commitment to the local technology ecosystems.

Despite a notable contraction in funding across Europe, some critical 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% year over year, 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.

The report found that as these banks emerge as success stories, the UK has become a hub for profitable growth while other European nations work to adapt.

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.

The findings show that funding rounds for FinTech unicorns have slowed. Investors prioritise companies with solid financial fundamentals and avoid overly ambitious valuations based on hypergrowth and unproven profitability.

According to the report, 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.

AI Creating Efficiency

The report also found that the industry, particularly the insurance sector, is expected to benefit significantly from the adoption of AI technologies in the coming years.

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 $10 million in AI in the next three years, making the industry more efficient.

Aman Ghei, Partner at Finch Capital, said, “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.”