In some ways, fintech has come full circle this year. After an unprecedented year of funding in 2021, it had further to fall than most tech sectors. And fall it has: investment into the sector has dropped 24% from last year, according to Sifted’s analysis. That compares with some modest increases for climate tech (0.7%) and SaaS (3.5%) — two areas that investors who used to be fintech fanatics have been increasingly looking into.
Many of last year’s fastest-growing fintechs were also forced to lay off staff.
To make sense of it all, I’ve rounded up the major trends — and flops — of the year. Borrowing from my token Fintech newsletter, I present to you what was hot and what was not in the world of fintech in 2022.
European fintech 2022: What was hot
As consumer-facing fintech lost its lustre, investors couldn’t seem to get enough of an endless stream of fintech "infrastructure" startups that claimed to have built solutions for problems you never knew existed. The vast majority are less exposed to macroeconomic headwinds and are promising to help other companies save time, resources and crucially, cash, as the recession deepens. B2B sectors including CFO tools, capital markets fintechs, B2B buy now, pay later (BNPL) and payment rails are what investors apparently find sexy now.
Funnily enough, as fintech funding prospects dried up, profitability became the new buzz word among founders: I’d say it was probably the word uttered most by founders in interviews, but it would take an awful lot of transcribing to confirm that. Whether it be the CEO letters that justified layoffs with a “renewed focus on profitability” or the fintech founders who claimed they’d reached “gross profit” or “profitability on a monthly basis” — you name it, we heard it. But let’s zoom in on the only thing that Sifted counts as real profitability for a second: annual profitability. Starling Bank was the sole private fintech to reach this super rare status in Europe, posting its first annual profit in July.
Elsewhere, rising interest rates seem to be benefitting other neobanks as well. Zopa said it had broken into monthly profitability in April, Allica Bank reached monthly profitability in June and Revolut CEO Nik Storonsky told me the neobank had hit profitability last year — a claim we’re waiting to verify when its annual results come out in the week before Christmas.
Female fintech CEOs
Despite this year’s tricky fundraising environment, a large chunk of the most high-profile fintech funding rounds went to companies with women at the helm. Among them were 12 European fintechs with women in the most powerful position of all — CEO — and five with female cofounders. That may not sound like many, but trust us, it’s huge progress on previous years.
They’ve all got super impressive backgrounds and they all attracted investment from some seriously big name investors. We’re talking the likes of Goldman Sachs, Sequoia, Andreessen Horowitz, Anthemis, Index Ventures, Speedinvest and Atomico.
But let’s not rest on our laurels. The overall stats for female funding in Europe are actually grimmer this year than last, according to Atomico’s latest data, which has us worried the downturn will hamper diversity efforts.
European fintech 2022: What was not
It’s been crypto’s worst year yet. It started off as a slump from peak pandemic crypto hype and ended in one of the biggest financial scandals in history — Sam Bankman-Fried and FTX. You don’t need me to explain what happened there, but what’s certain is that it freaked out everyday investors in crypto.
European crypto app downloads have collapsed from 2021 levels; Berlin-based crypto bank Nuri went insolvent; the entire crypto industry is worth less than a third of what it was this time last year; banks have begun banning links to crypto transactions’ and investors last week made more than $1bn worth of withdrawals from the world’s largest crypto exchange, Binance, amid fears it would be implicated in the ongoing FTX investigations.
All that being said, there are still quite a few European VCs who still believe that crypto will make it out the other side.
And here are the VCs that are most exposed to crypto’s troubles.
Buy now, pay later
Buying your clothes from ASOS and paying in interest-free installments was a pandemic trend that exploded in 2020 and 2021, as did the valuations of the fintechs providing the service. But now the BNPL sector is rather exposed to current economic headwinds.
Rising interest rates, declining consumer spend and the increasing risk of customers defaulting on their loans all combine to create a perfect storm of BNPL danger as we head deeper into the recession.
This goes part of the way to explaining Klarna’s massive valuation drop of 85% this year, and its sudden cost-cutting efforts. Investors will be scrutinising the numbers, and they aren’t looking good. Klarna’s losses have been multiplying; public BNPL stocks have shrunk in value; and smaller players have begun withdrawing from markets. Meanwhile, regulators have been making progress towards introducing some much-needed rules and regs to this corner of credit, which is good news for consumers but perhaps bad news for smaller BNPL companies that don’t have the resources to keep up.
Investors tell me we can expect some significant consolidation in the sector in 2023. Who will be first to go?
One of the worst themes of 2022, and disproportionately felt by the fintech sector, was layoffs.
The first big layoff announcement came from the biggest of them all (at the time): Klarna, which laid off 10% of its workforce in May. From there, a wave of other European fintechs followed.
Some of them were handled better than others, and so we learned an awful lot about varying company culture at European fintechs.
I expect we’ll see quite a few more in 2023, so I hope that fintech founders use these lessons going forward.
Sifted’s top 10 fintech articles of 2022
We wrote a lot about fintech in 2021, but a select few articles really hit a chord. These are the scoops, analyses and interviews that topped the traffic charts from the last 12 months.
- Klarna lays off 10% of its team amid valuation crunch
- Italy gets its first unicorn as Scalapay raises $497m from Tencent
- What’s behind the N26 employee exodus?
- Meet the ex-Robinhood employees who are now taking on Wise
- Klarna to make second round of job cuts
- Restaurant payments app Sunday pulls out of four markets
- ‘N26 isn’t for everyone’: CEO Valentin Stalf addresses neobank’s culture struggles
- Will Europe get a superapp, and who will it be?
- Revolut’s Storonsky says it can still fundraise if it wants to speed up expansion
- How to do Gen Z finance in 2022
And our most-read fintech op-eds were … surprise surprise, stirring the pot on Web3
- What a Web2 fintech founder learned after 3 weeks of Web3 immersion
- Don’t believe the hype: Web3 is not going to change the world