European Fintech Rises to the Challenge

Venture capital investment in fintech reached an all-time high in 2015, with nearly $14bn invested worldwide, more than double the global 2014 figure. The US accounted for half the 2015 total, and Europe 10% – with the UK and Germany dominating. 64% of investments took place in the second half of 2015, indicating that investment momentum may still be increasingi.

Though the start of 2016 has been tough for global markets, VC investment hasn't slowed at the rate one might expect – total venture activity so far is up compared to this time last yearii. Savvy US investors have long looked to European businesses for value; and whilst raising funding is always difficult, there will continue to be capital available for good high growth European fintechs solving real problems for their clients.

At Silicon Valley Bank, we're expecting to see some consolidation in European fintech this year – mainly when fintech companies acquire other players in other countries to grow their customer base and territories.  This will be particularly true if access to equity continues to tighten. We're predicting a slowdown in new companies being funded and clear winners emerging in some fintech subsectors including marketplace lenders, money transfer, robo-advisors and merchant services, many of whom you can find in the Fintech50. Here are three subsectors that we're watching closely in 2016:

1. Regtech

Compliance with regulation is critical to a fintech's success and sustainability. With financial regulation and reporting requirements becoming more complex, a growing industry will emerge to ensure both traditional financial services companies and emerging companies stay on the right side of the regulators.

2. Insurance tech

The insurance industry is two steps behind in terms of technology, user experience and customer engagement. We expect to see significant enhancements in the way businesses and consumers monitor risk, get access to and insure themselves.

3. Infrastructure and payments

In December 2015, we asked fintech leaders where they see the greatest opportunity for disruption in fintech. The majority (37%) said infrastructure and payments, where Europe is still very much in build mode, so we expect substantial growth here.

Government support for fintech

It is heartening to see European governments and regulators supporting the fintech sector with initiatives such as the Single Euro Payments Area and the Payment Services Directive 2. In addition, regulators are having open dialogue with startups to help them become licensed and compliant.

What we're doing at Silicon Valley Bank

We are delighted to support all of the Fintech50 businesses in this guide, some of whom are our clients. In recognition of the difficulties many businesses face in expanding to the US, we are partnering with Stripe to give entrepreneurs around the world access to the basic building blocks for starting a global internet business. Stripe Atlas entrepreneurs will gain access to an incorporated US business entity, a SVB US bank account and access to basic services they'll need to get started. We also work with MasterCard to provide Commerce.Innovated, a virtual accelerator in key fintech subsectors. Finally, we've just moved our UK Branch to much larger premises on the edge of London's Silicon Roundabout at the intersection of the City and Tech City to provide European innovation businesses with a hub to meet with potential investors and partners, as well as tap into our industry expertise. Stop by next time you're in London, we'd love to see you.

 Source: KPMG 2016

ii Source: Mattermark 2 March 2016

About the Author

With over 20 years’ experience working with financing technology companies at all stages of growth, Alex joined Silicon Valley Bank in 2010, where he focuses on venture capital relationships and global business development. Alex works closely with the venture capital community and venture backed companies, delivering financial services and debt solutions, and leveraging Silicon Valley Bank’s global network to help early and growth-stage businesses succeed. Prior to joining Silicon Valley Bank, Alex was an Investment Manager at venture capital fund TTP Ventures, where he invested in and managed a number of portfolio companies, including Teraview, CamSemi and Wayve.

In 2001, Alex co-founded TISS Ltd. to develop a range of security systems for commercial vehicles. As Managing Director, Alex raised several rounds of venture capital funding and helped TISS to grow, achieving worldwide sales to global logistics companies including TNT, DHL, UPS and Mercedes. He successfully exited the business in 2007.

Alex holds an Investment Management Certificate from the UK Society of Investment Professionals.