New research from Finch Capital portrays Europe’s fintech sector as increasingly competitive, yet still reliant on the US for key building blocks of scale, including later-stage funding, cloud infrastructure and payment rails.
In its State of European FinTech report, the investor argues that Europe has strengthened its position in areas closest to regulated financial services. However, the biggest European fintech brands still depend on US backers for their largest funding rounds. It describes this tension as a “sovereignty paradox”: Europe leads in customer experience and regulatory know-how, but lacks a domestic capital base that can reliably finance breakout companies through to maturity.
The report argues Europe has narrowed the venture and growth funding gap with the US in recent years. It estimates European fintech raised close to €40bn in venture and growth capital between 2022 and 2025. Over the same period, funding for US peers fell, based on its analysis.
London stands out in the report’s ranking of global fintech hubs. It places London first worldwide by funding value, ahead of the Bay Area and New York, and describes the UK as Europe’s leading fintech market. The report says the UK accounted for 70% of European venture and growth deals in 2025, with London representing 72% of UK deals.
That concentration has not removed Europe’s dependence on US investors, particularly at later stages. The report says European fintechs can raise early-stage funding for rounds below €100m without significant difficulty, but reliance on US capital increases above that level and rises sharply for the largest rounds.
All European funding rounds above €1bn in the past five years were led by US investors, the report says. On that basis, Finch Capital estimates a €9bn gap if US investors did not participate in later-stage European fintech funding.
“London’s ranking as the world’s number one FinTech hub is not symbolic – it reflects structural momentum. Europe has quietly built the deepest regulatory expertise and financial infrastructure talent pool globally. The funding gap with the US is narrowing, not because America is weakening, but because Europe is compounding,” said Aman Ghei, Partner at Finch Capital.
The report highlights pension funds as a key lever for European policymakers and market participants. It says European pension funds allocate 4.3% of assets to private equity, venture capital and infrastructure, compared with 11% in the US. The divergence is larger for venture and growth capital: European pensions invest less than 0.02% of total assets in that category, versus 1.9% for US funds.
Finch Capital estimates that narrowing the gap could direct €37.5bn a year into Europe’s venture and growth ecosystem. It points to a UK initiative as a reference for what might be possible at scale: 17 major workplace pension providers have committed to allocating 10% of default portfolios to private markets by 2030. The report says that commitment could unlock up to £50bn, or about €57.5bn.
“The €9bn dependency on US capital is real, but it’s important to call it what it is: a policy gap, not a market verdict on Europe. The frameworks just haven’t caught up with the opportunity. The UK’s pension commitment shows they can, and fast. If EU policymakers follow, Europe could be funding its own growth rounds at scale before the end of the decade,” said Ghei.
The research also argues that European fintech can offer stronger returns than the US in certain segments, particularly those that depend on regulatory depth and complex integrations. Finch Capital compares “funding-to-exit value ratios” across fintech sectors between 2021 and 2025. It says European “CFO Office” software companies achieved a ratio of 2.54x, versus 1.31x for US peers, and that European regulatory and compliance companies also outperformed by the same measure.
US fintech continues to lead in “balance-sheet-heavy” categories such as insurance, lending and banking, the report says. It argues that the next phase of AI adoption will concentrate more on compliance and operational segments than on those categories.
“When you look at the data, Europe isn’t just competing – it’s outperforming where complexity and regulation create real defensibility. In a world of AI, capital efficiency, data and embedded compliance matter more than balance-sheet size. That’s exactly where Europe leads – and where the next generation of value will be built,” said Ghei.
The report challenges the idea that AI will erode differentiation across fintech in the same way it may reshape broader software markets. It describes a wider “SaaS Apocalypse” but argues fintech has structural protections that are harder to replicate, including jurisdiction-specific regulation, audit requirements, embedded payment infrastructure and proprietary transaction data.
Since 2020, it says 25% of AI-led European fintech has focused on regulatory and compliance solutions, while 19% has targeted finance functions associated with the CFO Office. The report links those areas to higher “structural liquidity profiles” over the past five years, based on its exit value analysis.
Overall, the findings suggest Europe can produce strong outcomes in regulated, compliance-intensive fintech, but still needs deeper pools of local capital if its largest companies are to reduce reliance on US-led growth rounds.…Read more by Karen Joy Bacudo