European Fintech Startups Gain Funding

European Fintech Startups Gain Funding

By Heidi Reidel

Fintech has the potential to not only disrupt current financial systems but also could eliminate 30% of jobs in the banking industry. Increased demand for online banking and online payments makes it the next logical step for financial institutions. However, despite the inevitable technological shift transforming the financial industry, fintech appears to be losing traction in the United States while it gains traction in the rest of the world.

Fintech Startups Shift to Europe

Fintech’s shift of interest from the U.S. to specifically Europe stems from various factors. All the rave about fintech over the years has led to high valuations. There have been concerns from online lenders over high loan losses and industry scandals such as Lending Club falsifying loan documentation. All these factors have slowed the fintech market in the United States. Conversely, Europe’s regulatory regime is less complex and they’ve had fewer failed startups to scare away investors, leading to the current rise in their fintech market.

Fintech in the U.S. raised 8% less in the first quarter of 2017 than it did the previous quarter and 39% less than the same time a year ago. U.S. fintech startups also closed 9% fewer financing deals from the previous quarter. Investments in fintech in Europe, however, increased by 250% from the previous quarter and the number of fintech deals increased by 74%.

Startups Challenge the Industry

Globally, financing for fintech has increased by 66%. As for European startups, the ones rising to the top are the ones challenging various industries. The payments sector is an increasingly crowded sector. Companies such as Adyen and Currency Cloud deal with international payment processing and cross border money transfers for businesses. Rival banks provide the same services but are slower and charge higher fees.

WorldRemit is taking on the $600 billion remittances market. It allows users to send money via their app to people around the world. It’s raised $45 million to fuel expansion and developing countries are receiving $441 billion from international migrants sending money home to some of the 2 billion under-banked people in emerging economies. Challenging traditional brokers are companies such as eToro, which works as an online broker, even allowing users to learn investment strategies.

Some fintech startups are even challenging other fintech startups. Peer-to-peer money transfer apps like Venmo are being challenged by companies like TransferWise (which allows users to transfer money across borders), Funding Circle, and Zopa. iZettle, a payments processing company which comes with a free card reader, is challenging the likes of U.S. company Square, though CEO Jacob de Geer claims that the companies are focused in completely different markets. Klarna, another payments processing company, is a direct challenge to PayPal.

Startups in the U.S.

Fintech in the United States has not completely folded. Fintech startups in the U.S. have shifted to things like insurtech (with companies such as Metromile) and real estate technology (with companies such as Cadre). A startup called Cross River Bank has even capitalized on banking for its fellow fintech disruptors.

Europe is essentially capitalizing on the groundwork laid by American startups and learning from their mistakes as well. This, in turn, is requiring American startups to vye for investors’ attention and funding. The fintech market has plenty of room to grow; hopefully, American startups can regain traction.

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