RegTech overtakes Blockchain & Digital Assets deals in Europe amid tighter regulation in Q3

Key European FinTech investment stats in Q3 2023:
· European FinTech deal activity reached 233 deals in Q3 2023, 56% drop YoY
· European FinTech companies raised a combined investment of $1.24bn in Q3 2023, a 72% reduction from Q3 2022
· RegTech was the most active European FinTech subsector with 50 deals.

European FinTech continues to underperform with deal activity and investment dropping significantly YoY in Q3. In the third quarter of 2023, European FinTech deal activity witnessed a significant decline of 56% compared to the same period last year, with a total of 233 deals. European FinTech companies secured a total combined investment of $1.24bn in Q3 2023, a 72% drop from Q3 2022 levels.

Bunq, a Dutch neobank, had the largest FinTech deal in Q3 2023 after raising $111m (€100m) in their latest Venture funding round, led by Pollen Street Capital. This latest funding puts Bunq at a €1.65bn valuation, exactly the same valuation the neobank had in 2021 when it raised $228m. This fresh capital allows the mobile bank to further accelerate its international expansion and continue its rapid growth. The company presently boasts nine million customers, a significant increase from 5.4 million just one year ago. Additionally, it has seen a substantial growth in customer deposits, currently holding €4.5bn, compared to €1bn two years ago. While most of its customers are located in Europe, the CEO, Niknam, believes that the U.S. presents an equally substantial opportunity. In April of this year, the company initiated the process of obtaining a banking license in the U.S. Its aim initially will be to target the various expats from Europe who have moved to the U.S. but still have roots in Europe. “I have experienced how complicated things are in the U.S.,” he said. “You can’t survive without a bank account, but getting one without a U.S. tax ID [or credit history there] can be mind-bogglingly difficult.” Similarly, he believes that offering services to U.S. residents who have moved abroad to Europe presents another opportunity that’s much easier than opening local bank accounts.

RegTech was the most active European FinTech subsector in Q3 2023 with 50 deals, a 17.8% share of deals. Notably Blockchain & Digital Assets has fallen to the 4th most active FinTech sub sector in Q3 2023 with 33 deals, a 11.7% share of total deals. The likely culprit for this drop is regulation which will cause an increase in time and costs for companies, pricing out many new and existing startups. In May 2023 the European Council adopted new rules on markets in crypto-assets. MiCA, or the Markets in Crypto-Assets Regulation, is a regulatory framework introduced in the European Union. It aims to protect investors and promote transparency by establishing comprehensive rules for issuers and service providers in the crypto-asset sector. These rules encompass utility tokens, asset referenced tokens, stablecoins, trading venues, and crypto asset wallets. The framework also emphasizes compliance with anti-money laundering regulations. By harmonizing regulations across the EU, MiCA seeks to enhance financial stability, encourage innovation, and make the crypto-asset sector more appealing, addressing the limitations of national legislation in certain member states.

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