After several years of turbulence, the global fintech sector is entering a new growth phase. In Europe, however, fintech penetration remains below 3% even as consumers trust digital platforms more than legacy banks. According to an investor, the next phase of European fintech growth will depend on startups that can build regulatory capability early and use AI to compete with better-funded incumbents.

Last year, global fintech companies generated approximately $650 billion in revenues, representing a growth rate of about 21% year over year from 2024, according to a recent McKinsey report. Investment data by CB Insights shows that in Q1 of this year, fintech deal value was $12,1 billion, up 3,7% year on year, with the US capturing 47% of deals, while Europe accounted for around 21%.

According to Daiva Rakauskaitė, Managing Partner at a VC firm Aneli Capital, despite global growth, the European fintech market remains underutilized.

A McKinsey consumer survey across European countries shows that consumers trust fintech companies and digital banks more than traditional banks for the first time, and see fintechs as more innovative, more transparent on fees, and better value overall.

However, fintech financial services still represent only a fraction of the broader financial market. In Europe, the fintech sector has remained smaller, with 2.6% market penetration, compared to 3% in Asia and 8% in Latin America.

Rakauskaitė notes that European fintechs often lag behind due to fragmented national markets, stronger incumbent banks, lower access to capital, and regulation.

“In Europe, regulation often sets the pace of fintech expansion. For early-stage companies, compliance and licensing requirements can increase the cost and complexity of market entry, often favoring larger, better-capitalized players. At the same time, fintechs that invest in regulatory capabilities early can turn compliance into a competitive advantage, strengthening customer trust and increasing their attractiveness to investors,” Rakauskaitė says.

According to Rakauskaitė, the main driving force behind the new wave of European fintech winners will be those that can grow in a regulated environment and deploy AI to scale.  Q1 investment data by PitchBook already shows that investors are backing AI-native startups at the earliest stages, where smaller teams are hitting growth benchmarks faster than ever before.

“Scaling a financial product used to require massive engineering, operations, and compliance teams from day one,” Rakauskaitė says. “Today, AI-native startups can automate significant parts of product development, operations and customer support, allowing them to reach product-market fit and validate distribution channels with substantially less capital and smaller teams. While regulated financial activities still require robust compliance and governance functions, AI is reducing the cost and time needed to build and scale fintech products”.