The Future of Fintech in Europe Is Quiet Similar to Traditional Banking

Firms are branching out amid rising interest rates and losses. Business banking and interest-bearing loans are on the cards

FREMONT, CA: Giant fintech companies in Europe were founded on the promise of innovative financing methods. Their future moves are starting to resemble tried-and-true traditional banking due to pressure from rising interest rates and anxious investors.

Following US-Irish rival Stripe, the Dutch payments company started lending to small businesses this year. Meanwhile, the UK's Revolut has expanded beyond fee-free options into more profitable interest-bearing services, while the Swedish organisation is outsourcing more of its technology.

An early-stage investor in several fintech companies, many of these businesses are growing into various products and trying to cross-sell them to existing clients.

Companies and their supporters have been forced to undertake some soul-searching due to record losses and a precipitous decline in tech valuations. Despite the company's profitability, Adyen's stock has dropped by about 40 per cent in the last year, while US-based Stripe wrote down its value by 27 per cent this summer, and a down round caused its valuation to fall to USD 6.7 billion from USD 45.6 billion.

Many of these companies prospered as a result of easy financing and consumer demand during the pandemic. After several rate increases and impending recessions, the models are now being put to the test like never before.

There has been a big reset of expectations and valuations, with some natural implications. Some well-known brands are quickly changing and broadening their product scope to offer services throughout all market cycles.

The growing industry of buy now, pay later is facing the biggest obstacle from a higher rate environment. These businesses first let clients spread out payments for products over three or four instalments without charging interest. Therefore, they now rely on fees provided by merchants.

Companies in this industry are seeking methods to pass on their higher debt costs, as borrowing costs have increased significantly this year.  Some financial organisations are expanding their horizons the other way around. Revolut, which aims to be a super-app for finance, unveiled a BNPL product in Ireland this year. The company's boss stated in November that it also intended to introduce a quicker mortgage application procedure while continuing to be dedicated to its crypto business, which has collapsed along with the value of digital currencies this year.

The face of BNPL and the former most valuable tech unicorn in Europe has been experimenting with a variety of products, including tools for comparing prices. In October, it also disclosed a technical alliance with small businesses, although it has stated that it only offers open banking services and does not actively lend to companies.