Total fintech investment in Europe skyrocketed in 2019, driven primarily by the $42.5 billion acquisition of payments processing company Worldpay by Fidelity National Information Services (FIS) in July. Flourishing innovation ecosystems in numerous European countries, the broadening scope of fintech offerings, and growing interest from global investors also helped spark investment.
The top fintech deals in Europe in 2019 were diverse both geographically and from a solutions perspective. After Worldpay (UK), the next three largest deals included the acquisition of digital asset trading company AliExchange in Estonia for $2.1 billion, the buyout of alternative investment software company eFront in France for $1.3 billion, and the buyout of platform company SIA (Milan) in Italy for $894 million.
The growing maturity of fintech markets across the region and the need for financial institutions to up their game helped drive investor interest in fintechs. Europe also gained significant attention from global investors looking for opportunities. For example, Australia’s Commonwealth Bank participated in Sweden-based Klarna’s $460 million funding round in Q3’19.
Median VC deal sizes in Europe grew significantly across all deal stages in 2019. This growing maturity of fintechs across the region led to numerous $100 million+ funding rounds during the year. Corporate investors also played a very strong role in VC investment in 2019, with corporate fintech investment reaching a new annual high of $3.4 billion.
Fintechs that began with a focus on a niche product offering continued to broaden their range of services over 2019, with some moving from unregulated offerings to becoming more like traditional financial institutions. The increasing capital requirements associated with this shift, combined with the capital needed to fuel growth both product-wise and geographically, will likely continue to push deal sizes higher over the next year.
Q3’19’s Worldpay deal propelled the UK to a new record for annual fintech investment. The mega-acquisition highlighted the massive battle occurring in the payments space, not only in the UK but around the world. In the UK, the payments space is in the midst of a major shakeup with traditional banks, fintechs, tech companies, and others working to determine who owns customer relationships and distribution channels.
Payments is going to be very hot over the next year in the UK. There will likely be more mega-deals like Worldpay focused on the payments space as companies look to acquire customers and data. We’re also going to see payments firms looking to bolt-on open banking and data capabilities so that they can drive more success from mining their own data.
Fintech activity in Ireland was relatively soft in 2019, although it did see a number of solid niche investments, including a $85 million funding round by financial software company Fenergo and a $30 million raise by student loan provider Future Finance, both in Q3’19. Investment could heat up in 2020 as fintech companies that didn’t need to raise funds in 2019 look for new funding rounds.
Fintech investment in Ireland was somewhat muted this year, although there were a few standout deals, including Fenergo, Immedis and Future Finance. Google’s recent acquisition of Dublin-based Pointy also created quite a bit of excitement within Ireland’s fintech ecosystem. This could help drive some momentum heading into 2020.
Fintech investment in Germany was strong in 2019, led by N26’s $470 million raise in Q3'19. M&A activity was also robust, with a number of maturing fintechs starting to acquire smaller startups in order to expand their breadth of offerings. Interest in regtech continued to grow in Germany, particularly related to risk management. Insurtech also gained traction — Insurtech hubs and innovation labs Insurtech Hub Munich and InsurLab Germany continued to be instrumental in diving growth.
Open banking is a huge topic in Germany. We now have a number of white label banks with bank licenses, such as solarisBank, with APIs that can be used by others. This opening of the banking system is going to be increasingly disruptive for the established banking model. We’re going to see established banks thinking more about how they can use these APIs to support new business models. The future will belong to those that are very agile and customer-centric.
Israel saw strong interest from fintech investors throughout 2019, with record-breaking levels of investment despite a declining number of deals. Partnerships were a key focus area.
Given its strong R&D and cybersecurity ecosystems, fintech-focused cybersecurity solutions were a key interest in Israel, in addition to insurtech offerings. There was also an increasing interest for AI-driven solution, like audit analytics and automation, during the year. Talent management solutions are expected to become an area of focus in Israel as financial organizations look to manage multi-generational workforces with diverse skill sets.
Many countries around the world are moving toward opening banking; Israel is no exception. In Q4’19, the Bank of Israel published guidelines to implement an open banking standard. Knowing that it is coming, the big banks are also grappling with the ‘how to’ — trying to answer key questions like ‘What’s the right business model?’, ‘How can we make money?’ and ‘How to address the risk management and privacy issues and keep the trust of our customers?’
Looking ahead to 2020, fintech investment is expected to remain robust in Europe, with maturing fintechs able to attract larger deals. Payments and digital banking will continue to be very hot areas of investment, while investment in areas like insurtech, regtech, B2B solutions, and wealthtech are expected to grow.
In the UK, fintech-focused cybersecurity is also expected to be increasingly attractive to investors in 2020, with secure technologies and digital ID efforts gaining more traction over time. In Germany, fintechs with a sustainability focus could also see increasing investment as both traditional banks and other market players look to provide more targeted sustainability products to their customers.