Contributed
This content is provided or sourced from third parties but has been editorially reviewed by Finextra.
2023 has been, by some measures, far from a good year for the fintech sector in Europe.
record post-pandemic period2023 saw a correction, leading to lower valuationsThe European fintech market experienced significant challenges due to factors beyond its control. The global economic environment was tumultuous and overall investor sentiment was negative, with investment falling to a five-year low.
It’s understandable that as we enter 2024, many fintech executives are feeling rather pessimistic about the outlook for the sector, but there have been signs of improvement, bringing hope to struggling businesses. While fintech executives were cautious in the early months, remembering the lessons of 2022-2023, they are starting to feel more optimistic about what the future might hold.
A cautious return to confidence among fintech leaders
As 2024 dawned, many fintech leaders were likely in survival mode, looking to protect their businesses from the worst of the market. Six months into the year, a shift has occurred.
How do we know that European fintech leaders feel this way? We asked them.
Money20/20 Europe is one of the largest events in the fintech calendar, where executives come together to discuss the industry’s hot topics and gain insight into the state of the sector. There’s no better barometer of fintech executive temperament than the mood of the event’s attendees. Surveying a sample of Money20/20 Europe attendees, Rabobank spoke to fintech executives, service providers, investors and technologists to gauge their perceptions of the state of the fintech market.
The survey results are encouraging, with the majority of respondents positive about the future of the sector. More than a quarter of them believe that the market is booming compared to last year. Only 13% believe that nothing has changed between 2023 and 2024, and only 3% believe that the situation has worsened.
Despite the current economic and geopolitical turbulence, the uncertainty of recent years may be giving way to confidence, at least in the European fintech sector.
What will drive growth?
One reason for this change in sentiment is the strong growth and profitability reported by several of the sector’s largest players in recent months. Despite the slowdown in 2023, the sector’s expected expansion in the coming years means that the global fintech market is set to reach a value of $644.6 billion by 2029, up from $209.7 billion in 2024. Recent investment news may seem less positive than we might hopebut increased confidence meant that the response was to view this as the market “bottoming out” and that change was on the way.
According to our research, the biggest impact on the market right now is consolidation (26%), followed by access to finance (17%), AI (13%) and interest rates (13%). While interest rates and access to finance would have likely topped the list last year, it’s not quite the same concern it once was. However, consolidation is. Looking for a lifeline beyond 2023, many companies have repositioned themselves and are open to the prospect of acquisitions, with several large players capitalising by merging with or acquiring companies they may have partnered with in the past. Consolidation can be seen as part of managing a market correction, a strategic option to become more resilient or build a better future.
Where will the growth that creates this brighter future come from? According to respondents, one of the main sources of growth is embedded finance. More than a quarter of respondents believe that embedded finance will be a major growth driver, with the most promising areas being payments, lending, identity and authentication. Meanwhile, the most overhyped technology is AI, and the least overhyped technologies are digital wallets and APIs.
Down to earth
These responses reflect a certain pragmatism at Money 20/20. According to our survey, fintech has been through a market correction and is slowly emerging from it. It is therefore more interested in technologies that will drive sustainable growth rather than ambitious projects that have no guarantee of achieving it. Approaches such as embedded finance, which involves banks and fintechs collaborating to provide services via an API, have already proven themselves and will continue to grow.
This pragmatism is also reflected in the predictions for the future. The most popular prediction for the next three years was that “big banks will go digital first,” followed by “banks, fintechs, and others will fully embrace the platform economy.” This growth of banks as platforms is part of this sustainable growth future, as banks and fintechs collaborate to integrate services where they are needed. The fintech industry will continue to do what it does, but better and for more customers.
The mood at Money 20/20 has been described as “bullish,” as we begin to leave the worst of 2023 behind us and see positive news in terms of profitability, growth, and perhaps even financing. Key to this shift are technologies such as embedded finance, which offer a way to leverage this optimism in a sustainable way.