September 13, 2023 at 12:02 GMTModified date: September 13, 2023 at 12:02 GMT
September 13, 2023 at 12:02 GMT

Crypto leads the European fintech industry: Finch Capital

Crypto businesses make up the largest amount of total fintech investment deals in Europe, according to a new report from Finch Capital.

Crypto leads the European fintech industry: Finch Capital

The crypto and blockchain sector has become a leading investment category in several major European markets, according to the latest ‘State of European FinTech’ report released by Finch Capital, an Amsterdam-based fintech venture fund.

The report found that one in three fintech companies now fall under the crypto or blockchain category.

But overall, the first half of 2023 was a depressing period for the fintech world. The Europe, Middle East, and Africa (EMEA) region witnessed a 50% decline in fintech investments in the first half of 2023, with funding decreasing from $27.3billion in H1 2022 to $11.2bn in H1 2023.

Despite this, the crypto sector distinguished itself, securing its position as the top category in the number of deals and ranking second in deal volume.

Crypto successful across markets

There were a number of markets that stood out in their investment in crypto businesses. In the UK, crypto and blockchain ventures secured 28% of all fintech deals in the first half of 2023, making it the most active sector. 

Investments in the Netherlands were even more crypto-oriented, with 35% of all deals in the blockchain category. Close on their heels, Germany and France saw crypto-related deals constituting 27% and 29% respectively.

An even stronger trend was observed in Poland. Crypto & Blockchain and Insurtech emerged as the most active subsectors, grabbing a 50% share of the total number of deals in H1 2023. The country’s investment environment was described as a “steep decline cushioned by crypto & blockchain”.

Fintech world suffers

Overall, the new report has revealed a significant decline in the European fintech space. The first half of 2023 saw capital investments only reach €4.6bn, a substantial 70% decline from the €15.3bn raised during the same timeframe in 2022.

Finch Capital also noted that the top 20 funding rounds in Europe, which constituted 50% of the market in 2021 and 2022, now account for over 60% of the total deal volume. Even though these rounds have become smaller, they dominate a larger portion of the market. 

While seed rounds continue to pull in funding, it’s the companies in the early Series A to C stages that are most affected by the squeeze.

In terms of sectors, payments, which consistently attracted hefty investments and saw a record capital inflow in 2022, has experienced investor caution recently, mainly due to concerns over inflated valuations. 

The lending sector, crypto’s primary competitor, has emerged as the frontrunner in market share, notably in Ireland, and across the continent in deal volume.

Strong appetite for crypto

While fintech experiences a downward trend, the digital economy has been witnessing sustained and robust investor interest, even despite the recent bear market and crypto scandals. 

Another recent study published by Amberdata reveals that 24% of asset management firms have integrated a digital assets strategy. An additional 13% plan on doing the same in the near future.

The report said: “Spending on crypto market data, on-chain data, as well as portfolio and risks systems are very much on the radar for the next 6 to 12 months, suggesting firms will be on firmer ground when the clouds clear and sunny skies appear next.”

And it’s not just about strategies. The industry is experiencing tangible growth. For example, European digital asset manager CoinShares registered a Q2 2023 revenue of $25.9m, marking a substantial 33% growth compared to the same time last year.