May 31, 2022

Which fintechs are likely to be acquired in the downturn?

These are the fintech subsectors where we’re most likely to see M&A in the next few months

Amy O'Brien

10 min read

Stefano Vaccino, founder and CEO of Yapily

Fintech has been flying high as the most well-capitalised tech sector for several years. 

But in the first quarter of 2022, global fintech saw its biggest drop in funding in three years, as deal numbers fell to a four-quarter low. 

We all know the problem: investors are getting nervous thanks to a public market slowdown, predictions of a global recession and a perfect storm of rising interest rates and inflation across Europe.

All these factors will affect the sector — and last week we saw that even Europe’s most valuable fintech, Klarna, is not immune, as it laid off 10% of global staff. 


Companies that have more capital to spare could take advantage of this opportunity to buy smaller, cash-stripped contenders on the cheap — either as a strategic move to nab customers, a new product or geography or in the form of an "acquihire" to poach talent. 

So which are the fintech subsectors where we’re most likely to see consolidation in the next few months? 


Europe’s neobanks have attracted the most fintech funding over the last decade, and according to Dealroom, there are now some 52 consumer-facing neobanks in Europe.

Thanks to huge fundraises, neobanks have been hiring aggressively, expanding into multiple geographies at pace and, mostly, vying for the same customers. 

There’s been a lot of duplication

“All of them wanted to go to the US, all of them wanted to be pan-European, all of them were adding all the same different features. So there’s been a lot of duplication,” says Radboud Vlaar, managing partner at early-stage VC firm Finch Capital. 

In this hyper-competitive market, customer acquisition costs have soared and the majority of neobanks have been burning through cash fiercely in pursuit of growth. At their last annual results, for example, Monzo reported £114.8m in pre-tax losses, while N26 reported a €150.7m annual loss.

ceo of starling bank
Anne Boden, the CEO of Starling — Europe's first profitable neobank

Only two neobanks — the UK’s Starling and Zopa — are currently profitable. 

In terms of market share, there are a handful of clear frontrunners. Revolut boasts 18m global customers, while N26 currently has 7m, Monzo has 5m and Starling has 2.8m. But Lunar, which reached a $2.2bn valuation at its Series D in March, has just 500k customers — which shows size isn't everything when it comes to valuation. 

Given that a good chunk of these neobanks make a portion of their money on interchange fees (they accounted for 60% of Monzo’s revenue in 2021 and 30% of N26's) they’re likely to be hit by a drop in consumer spending, which is already outrunning analyst expectations in Europe.

For smaller neobanks that haven’t managed to raise recent megarounds, don’t have a growing user base and don’t offer wildly different products, we may be approaching crunch time.

“Marginal players will get weeded out,” Rosenblatt Securities concluded in a recent analyst note, predicting a rationalisation in valuations across the board. 


“Everyone beneath those four or five big names is just on a customer acquisition road to destruction,” says Devin Kohli, cofounder of fintech VC firm Outward VC, referring to the high cost associated with acquiring a new customer compared with the amount of revenue generated per customer. “At some point, they're going to have to work out what to do.”

Why would Revolut buy a Bunq or N26? They’d rather see it go bust

So if you’re one of the smaller challenger banks that doesn’t have a healthy war chest as a backup, what do you do? 

“You either fold, choose to pack up shop and try and blend into an acquihire at a bigger player, or you sell yourself incredibly cheaply to get a sliver of equity in a bigger monster like Revolut, hoping it grows from its already rather aggressive valuation,” Kohli suggests. 

Revolut, Lunar, Bunq, Starling and N26 have all publicly stated their intention to make acquisitions. 

But, as was the case with Starling’s recent acquisition of buy-to-let mortgage lender Fleet Mortgages, they’re more likely to poach fintechs in adjacent areas of banking, rather than acquire a direct competitor.

“Why would Revolut buy a Bunq or N26? They’d rather see it go bust,” says Vlaar. “There are too many different aspects like the integration of brand value that make it very difficult.

Open banking

There are now more than 30 open banking fintechs in Europe — and, in 2021, VCs poured $1.5bn into 41 funding rounds in the sector. 

TrueLayer, Tink and Yapily are some of the better-funded fintechs in the space, but payments giants like GoCardless have also doubled down on their open banking offering, making the sector even more crowded. 

Then there are multiple less well-capitalised, smaller API aggregators that may find it harder to survive where they lack differentiation — and which could become acquisition targets for their larger relatives. 

Just two weeks ago, Yapily acquired German open banking rival FinAPI to quickly enter three new European markets and move towards its headcount goals.

The bigger open banking startups could also become acquisition targets for the better-funded neobanks or even incumbent banks.

“Now that the abundant capital has stopped, I do think we will start seeing more consolidation in the market and more conversations between more traditional companies and scaleups to potentially join forces,” says Lucile Cornet, partner at VC firm Eight Roads.

Buy now, pay later 

Buy now, pay later (BNPL) startups in Europe have raised $3.9bn since 2019 — more than half of the total investment into European payments startups in that time, according to Dealroom. But there’s one pale pink frontrunner that rules the space when it comes to customer numbers, brand recognition and capital: Klarna. 

Even so, the fintech last week announced it was laying off 10% of its staff as it redrafts its 2022 business plan to react to the economic downturn

BNPL is considerably exposed to the various macroeconomic headwinds coming towards fintech. As interest rates rise, its margins suffer, and the entire concept relies upon consumer spending — something that's already falling sharply in Europe as inflation swells. 

Klarna has already diversified its revenue streams to include a shopping app, bank accounts in Sweden and Germany and a B2B arm. So if even it is making its business leaner and reportedly tapping investors for more cash, it’s likely that the 20-odd other European fintechs in the space are less well equipped. 

Scalapay, which is on the prowl to acquire smaller rivals

Close behind Klarna, Europe’s other BNPL heavyweights like Scalapay, Alma and Zilch have all recently raised quite hefty rounds. They also have ambitions to expand rapidly into more countries — a well-known instigator for nifty acquisitions when prices are cheap.

At Scalapay’s recent Series B round, CEO Simone Mancini told Sifted that the company is on the prowl for “adjacent providers in our sector, either doing payments or other BNPL providers” — and already has one acquisition in the bag, due to be announced soon.

On the flip side, the neobanks and even incumbents have been eyeing up BNPL without a link to specific merchants for a while — and Monzo, Revolut and Curve have already entered the space, with the latter even letting customers go "back in time" for loans on any purchase up to a year ago. The Nordics' Lunar Bank also recently told Sifted that it’s eyeing up BNPL. 

As smaller players struggle to raise cash and valuations drop, we could see banks snap them up to muscle in on the payments product. At the extreme end of the spectrum, we could also see them begin to pull out of markets altogether (Australia’s Openpay pulled out of Europe in March), or simply fold. 

Revenue-based financing

Another subsector that’s been super hot in the last year or so is revenue-based financing — so called because these startups offer capital in return for between 5-20% of future sales. 

18 revenue-based financing (RBF) startups have cropped up in Europe since 2019. 

US "incumbent" players like Clearco and Pipe have also recently entered the European market. European natives like Wayflyer, Bloom, Uncapped and Outfund have all raised millions more than their smaller peers. 

Outfund, which recently acquired smaller rival Clicfunds
Outfund, which recently acquired smaller rival Clicfunds

But some fintechs in the space are having issues raising enough to provide loans. Each company varies in its loan length and fee size, and as Dealroom analysts point out, the path to profitability will depend on either “maximising the speed and accuracy of deploying capital” or focus on “added services” — like Reimagine and Uncapped’s business banking ploys. 

Sources tell Sifted that a couple of smaller players from Germany and Amsterdam have already stopped lending altogether as they struggle to raise capital — as was the case with Spain’s Clicfunds, which Outfund acquired last year to enter the Spanish market. 

At its recent Series A funding round, Outfund told Sifted it's already eyeing up a smaller German peer to acquire to enter the German market. 

But these smaller RBFs may also struggle to find a larger contender that has enough cash to buy them. One of the fastest-growing European fintechs in the space, Uncapped, recently laid off just over a quarter of its workforce as it looks to cut costs. 

The other big subsector trend to watch out for: Valuation corrections 

Europe’s payments sector is colossal by now (counting over 1,000 startups, according to Dealroom) and one exceedingly highly valued company (, at a $40bn valuation) — but it’s also already highly fragmented. 

This could mean we see some significant valuation corrections, as investors get real about revenue multiples. Publicly listed payments companies have seen their valuations drop by up to 49% so far this year (see Britain's Wise) and, according to Rosenblatt analysts, changes in public valuations tend to get reflected in their private counterparts “with a six-nine month lag”.

Sebastian Siemiatkowski, CEO of Klarna
Sebastian Siemiatkowski, CEO of Klarna

Case in point: Klarna is reportedly raising a down round at a valuation slash of a third to around $30bn, although the company won’t confirm this as of yet. 

What are the consequences of consolidation for the industry?

Although it may be awkward in the short term, the majority of VCs that Sifted spoke to (unsurprisingly) agree that a drop in valuations from the lofty heights of 2021 will be a good thing for the industry — as will a more challenging fundraising environment. 

“In the long term, I think it’s healthy for the subsectors that these fintechs are operating in as it will create fewer, but much stronger, companies,” says Vlaar. “The PE multiples and revenue multiples of some of these highly valued fintechs need adjusting — they just don’t add up compared to their listed peers.”

It won’t be so fun for European consumers though, who are likely to have fewer offers to take advantage of.

“A lot of the discounting these fintechs have used to retain growth on the customer side (offers, discounts and referral prizes) will be curtailed as they try to minimise burn. So as a consumer, your ability to free ride is reduced,” says Kohli. “This will push people to more loyalty — which means they’ll shop around less, making the larger companies even larger.” 

And when it comes to talent, fintech could start looking a little less appealing. 

We’re going to see more and more hiring freezes

“We’re going to see more and more hiring freezes, and most significantly, the rush of wage inflation we’ve seen will finally be tamed — particularly in tech and product roles,” Kohli says. “If a lot of well-known B2C fintechs start laying people off every week, this could have a negative impact on talent’s perception of the sector. This could result in some rebalancing as some of the more traditional sectors become more appealing as they’re relatively more stable.”

And for the companies that do merge, one of the biggest challenges for these fintechs will be retaining the best employees and finding a culture match in the new entity.

“Making sure the best people stay involved and embrace the new challenge is critical,” says Cornet. “But it’s never easy to manage in practice.”

Amy O'Brien

Amy O'Brien is a reporter at Sifted. She covers fintech and writes our weekly fintech newsletter . Follow her on X and LinkedIn