EMEA sees fintech funding slide in H1’23; long-term outlook remains positive

Total fintech funding in the EMEA region dropped considerably — from $27 billion in H2’23 to just $11 billion in H1’23 — as investors in the region enhanced their focus on profitability in the wake of global macroeconomic uncertainty, rising interest rates, the intense pressure on valuations, and a reduction in multiples. Despite the slowdown, the region is expected to remain strong over the longer term once the market uncertainty lessens.

The UK attracted the majority of fintech funding in the EMEA region in H1’23, accounting for half of the region’s 10 largest deals, including the $3.1 billion buyout of data insights firm Wood Mackenzie by Veritas, a $602 million raise by AI-powered lending company Abound, and a $250 million raise by e-trading platform eToro. Other countries that attracted large deals included France (Ledger — $493 million), Switzerland (Teylor — $299 million; Metaco — $250 million), Sweden (SignUp Software — $229 million), and Germany (Moonfare — $152 million). Key H1’23 highlights from the EMEA region include:

Landmark regulatory initiatives around open banking and embedded finance:

At the end of H1’23, the European Commission released its long-awaited draft of the revised Payment Services Directive (PSD3), and its proposals for a Payments Services Regulation (PSR) and a framework for financial data access. These ensure clear rights and obligations to manage customer data sharing beyond payment accounts, thus likely helping boost interest and funding in the open banking and embedded finance space and drive more collaboration between ecosystem participants. During H1’23, the UK’s Joint Regulatory Oversight Committee also announced a framework for moving to the next phase of open banking.1

UK moving to cement its place as a fintech leader

During H1’23, the UK passed the Financial Services and Markets Act 2023. The Act includes a range of measures aimed at enhancing the UK’s leadership and competitiveness in the financial services and fintech spaces. In particular, the Act enables changes meant to make the UK an attractive place to IPO, sets the foundation for the regulation of crypto assets to promote adoption, and establishes sandboxes to facilitate the testing of new technologies in the sector.2

EMEA Pulse of Fintech

Increasing interest in ESG-related fintech

In Europe, climate change has continued to be a top priority, with EU-based regulations, such as the Corporate Sustainability Reporting Directive, increasingly putting banks at the forefront of making certain their customers report on ESG compliance. This focus is already spurring both banks and corporates to consider their role in the process, the integration of multiple sources of data, and changes that will be needed to ensure alignment. In time, this will likely drive interest in ESG-focused fintechs that can help companies and banks with identified gaps.

Regtech focus remains strong

There continued to be strong interest and funding in regtech, particularly in companies able to help financial institutions with KYC and AML obligations to assist with digital onboarding, the detection of suspicious activity, and the ongoing management and updating of customer information. Historically, these activities have required a significant amount of manual effort; given current macroeconomic pressures, financial institutions are becoming increasingly interested in how AI and automation can help them become more efficient.

Trends to watch for in H2’23

  • Increasing focus on embedded payments and embedded finance, catalyzed by PSD3.
  • Growing attention to wealthtechs focused on democratizing access to funding in asset classes once limited to PE firms and other large-scale investors.
  • Strengthening focus on the use of AI and intelligent automation across financial services, including in the insurance and wealth management sectors.
  • The role of banks evolving to include more partnerships with fintechs, retailers, and other companies, such as through the offering of B2B embedded banking solutions.
  • Emergence of UK crypo regulations in an effort to position itself as a global crypto center.
  • Growing M&A activity, particularly from corporates as inflation and interest rates stabilize.
  • A thinning out of the number of fintech companies as cash-strapped companies desperate for funding seek sales to other companies.
  • Professional investors keeping their spending low. Retaining their power to help their existing portfolio fundings overcome the current drought, avoiding down rounds as much as possible, as multiples in private markets drop following the trend in public markets.