The Rise of the 'Soonicorn': How Europe's Fintech Landscape is Creating Unicorns

Due to Europe's delivering a significant rate of growth for tech startups, we've begun to see a series of "soonicorns" emerge as promising startups appear set for prosperity in the future.

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Europe is evolving into the world's leading hub for fintech companies to prosper. According to a recent report from tech M&A advisor, i5invest, and venture capital firm i5growth, the entirety of the tech ecosystem throughout the continent is outgrowing other continents by as much as 100 percent.

europeanunicornmap.com

The report specifies that 85 new tech unicorns were created in Europe last year, which is around 2.7 times faster than the U.S. in terms of growth. In total, around 132 tech companies in Europe have been credited with unicorn status.

Significantly, of Europe's top five most valuable unicorns, Klarna (€37.5B), Checkout.com (€35.4B), Revolut (€27.8B), Northvolt (€9.7B), and Global Switch (€9.6B), the most valuable firms, by some margin, are all fintechs.

The report itself notes that fintechs have the highest average valuation of €3.89B, with the next most valuable companies, emanating from the edtech, marketing, and HR sector averaging €2.70B — more than one billion Euros less.

Due to Europe's delivering a significant rate of growth for tech startups, and that fintech firms throughout the continent are averaging far higher valuations than other sectors, we've begun to see a series of 'soonicorns' emerge as promising startups appear set for prosperity in the future.

As the data shows, Europe's soonicorn landscape is sprawling — with much of the continent featuring at least one endeavour that appears set for a $1 billion valuation.

With fintech listed as a top five vertical, we can see that the UK, unfazed by Brexit, is set to host 73 soonicorns in the coming years, with Germany and France also among the continent's leaders, featuring 52 and 32 soonicorns respectively.

The bright prospects for the fintech landscape are set to be bolstered by emerging technologies, too. Chiefly, the prospect of intertwining finance technology and the fledgling digital ecosystem that is the metaverse will invariably become a key source of revenue for new fintech startups.

Fintech's symbiotic relationship with the Metaverse.

At the recent Money20/20 Europe convention, which took place in Amsterdam in early June, a central point of the expert panel of main stage speakers focused on the integration of fintechs into the age of the metaverse.

The panel, which consisted of leading entrepreneur and Strategic Designer for ENNO studio GmbH, Guillaume Vaslin, Global Head of Innovation, Global Functions at HSBC, Steve Suarez, Citi Ventures investor Jelena Zec, and Head of Fan Token and Binance Connect, Zoe Wei, explored the far-reaching prospects of the future of fintech in Europe.

There are many factors that are paving the way for European fintechs to take advantage of the potential of the metaverse. Early-stage opportunism has seen businesses act quickly and decisively in marketing themselves to like-minded VCs and customers.

"From major retail brands to tech giants, the biggest names in business are planting a flag in the metaverse," noted one session description at the Money20/20. "Financial services are critical to unlocking the full potential of the metaverse by providing secure and frictionless payments. For fintech startups, this presents a huge opportunity to embed their services into the future of the digital economy."

The timing could hardly be better for Europe's fintech soonicorns to build their way into the metaverse. The Covid-19 pandemic prompted a major shake up of traditional banking on a scale that hasn't been seen for decades. Lockdown measures — particularly across Europe — have led to widespread brick and mortar banking closures, and digital transformation is making customers more willing than ever to ditch their old banking habits and to adopt technologically advanced new challenger banks instead of the institutions they had been accustomed to. However strong the trend, it's important to avoid certifying the rise of the European fintech soonicorn as a guaranteed success. Startups would do well to learn from the difficulties that have befallen Latin America's leading fintech, NuBank, for instance.

Learning lessons from Latin America.

In the case of Brazilian fintech NuBank, the challenger bank's IPO brought sufficient optimism to pump shares by 15% upon its debut on the New York Stock Exchange, paving the way for an astronomical valuation of $45 billion — propelling it deep into the top 10 most valuable fintechs in the world.

However, in the wake of the company's December IPO, shares have tumbled 66.17 percent at the time of writing, with little indication of a reversal of fortunes in the foreseeable future.

The case of NuBank may become a cautionary tale for optimistic unicorns and soonicorns alike in Europe looking to capitalise on a wave of optimsm surrounding the prospects of fintech and the metaverse in the coming years.

"Nubank (NU) has amassed some 60 million customers, but it has had questions in the past about its high valuation and path to sustained profitability," noted Maxim Manturov, head of investment advice at Freedom Finance Europe.

"NU has managed to attract tens of millions of customers at a cost of $5, one of the lowest in the industry. The bank is incredibly popular in Brazil and is growing in Mexico and Colombia. The bank's main challenge is to generate high average revenue per active customer (ARPAC). At the end of Q1, 2022 ARPAC was $6.70, in 2021 it was $3.50, but this is low compared to existing retail banks in Brazil, which have a monthly ARPAC of around $40."

Manturov highlights that a potential disconnect still exists between fintech values and their tangible revenue prospects. With more competitors looking to win new custom with big marketing campaigns and low-cost accounts, fintechs will ultimately need to justify their growth potential with the number to back them up.

For Europe's wide range of soonicorns, it seems likely that the continent will see a flurry of high value endeavours hit the market in the coming months and years, but a bigger challenge may involve converting their unicorn status into a successful stock market floatation.