As Europe’s fintech sector moves beyond the growth-at-all-costs era, a new phase is emerging – one built on value, regulation and infrastructure, writes Julie Sutton, head of growth Europe at Paymentology.
European fintech is entering a new phase which is less about volume, more about value. While investment has been quieter over the last few years, funding in Europe is expected to grow by 19 per cent in 2025, with investors prioritising larger, later-stage deals. That’s encouraging momentum after the sharp slump in funding and deal flow, both in recent years and again in Q1 2025.
The UK remains Europe’s fintech capital, accounting for nearly half of all EMEA investment, despite hitting a four-year low in 2024, down 27 per cent to $9.9billion. Profitability is starting to surface, but only just, in some cases. Of Europe’s 66 fintech unicorns, only 13 are profitable, a reminder of the tension between rapid scale and sustainable returns.
But the tide is turning. Revolut posted a pre-tax profit of £1.1billion, according to financial results from 2024. Bitpanda and SumUp have also reached profitability, signalling a shift in focus from top-line growth to long-term viability.
Consumer and SME adoption of fintech services is rising fast, particularly in areas like open banking and embedded payments. In the UK, open banking payments hit 31 million in March alone, up 40 per cent year-on-year. For the first time, consumer usage has caught up with small business adoption.
Together, these point to a more mature chapter. This is fintech’s post-hype era, where investors no longer reward unchecked growth, regulators are stepping in with tighter frameworks, and the future is being rebuilt atop trust, infrastructure, and discipline.
So, what does this next wave of fintech look like?
The defining themes of 2025 offer a clear direction. Embedded finance is becoming the default across industries, turning non-financial platforms into financial providers. Stablecoins and tokenised deposits are entering the regulated core of the banking system. Buy-now-pay-later is being redefined by compliance. And Open Banking, once a rallying cry, is finally moving towards its Open Finance destiny.
Embedded finance Is now the norm
The fastest-growing financial brands in 2025 often aren’t banks. They’re marketplaces, ride-hailing platforms, or software firms embedding payments and lending into their ecosystems.
Across the region, organisations are becoming financial providers in their own right. Across the board, it’s starting to beg the question: why isn’t your brand a payments company yet?
Earlier this year, Xero announced it is acquiring Melio, embedding bill payments directly into SME accounting flows. It is now ubiquitous for retailers to offer BNPL at checkout across several European markets. And in mobility, platforms like Bolt are enabling real-time earnings disbursement through in-app wallets across Europe.
It’s a structural shift. By 2030, the embedded finance market could surpass €100billion and account for 10 to 15 per cent of banking revenue pools.
Stablecoins go quietly mainstream
Long considered a crypto side story, stablecoins are fast becoming a foundational part of the payments ecosystem. The total value of issued stablecoins has doubled to $250billion today from $120billion 18 months ago, and it is forecast to reach more than $400billion by year-end and $2trillion by 2028.
In June, Fiserv launched a stablecoin aimed at institutional clients. Several European banks are actively piloting tokenised deposits to reduce settlement times and costs. The conversation is shifting from crypto volatility to regulated utility.
Crucially, the regulatory scaffolding is falling into place. Under the EU’s MiCA framework, fiat-backed stablecoins must be fully reserved, licensed, and regulated as e-money tokens. In the UK, the Financial Services and Markets Act 2023 provides the legal foundation for regulating certain fiat-backed stablecoins as a means of payment, with full implementation expected to follow detailed secondary legislation now in draft.
For card issuers and networks, the implications are significant. Stablecoins have the potential to bypass traditional interchange models, offering faster, lower-cost settlement, especially in cross-border use cases. The next wave of card innovation isn’t necessarily about plastic or virtual format, but about the underlying currency and how it moves.
Tokenisation moves from backend to front page
Earlier this year, Mastercard announced its plan to phase out manual card entry in e-commerce by 2030, replacing it with a combination of tokenisation, Click to Pay, and biometric passkeys. Already, more than 25 per cent of Mastercard’s global e-commerce transactions are processed using tokens, a figure that’s expected to accelerate as merchants, banks, and wallets embed token-first solutions.
According to Mastercard, tokenised transactions reduce fraud by up to 80 per cent and lower false declines by as much as nine per cent.
In Europe, tokenisation is also gaining traction at the issuer level. Banks and processors are investing in infrastructure to provision and manage tokens across channels, from cards to digital wallets to wearable devices. The implications are far-reaching: a token-first model could enable far more granular control over payments, reduce the value of stolen card data, and ultimately pave the way for more secure forms of embedded finance.
BNPL continues to grow up
Buy now, pay later adoption remains high across Europe, with countries like Germany, Sweden, and the UK leading the charge, driven by heavyweight players such as Klarna and PayPal. As of May 2025, Klarna counts 11 million active customers in the region and has doubled its merchant base to 60,000 in just one year, launching with major brands like Argos, eBay, Eurostar and John Lewis.
But the regulatory picture is tightening. The UK is finalising rules set to take effect in 2026 that will bring BNPL under Financial Conduct Authority supervision, introducing mandatory credit checks, clearer disclosures, and stronger consumer protections. France and Germany are moving in a similar direction, with legislation under way to ensure responsible lending practices.
The European BNPL market is projected to grow by 12.4 per cent annually, reaching $191.3billion in transaction volume by the end of 2025. But while the market is still expanding, the pace is slowing, and maturing, under more rigorous oversight.
Issuers are increasingly offering instalment features directly on debit and credit cards. At Money 20/20 Europe this year, Klarna and Visa launched a pilot of a new debit card with increased flexibility – allowing consumers to pay immediately or pay later when needed – online or in-store.
As regulation reshapes the playing field, consolidation is expected. Larger, well-capitalised players are adapting quickly; smaller providers may need to pivot, partner, or exit altogether.
Open banking hasn’t peaked, but open finance is rising
Adoption is growing steadily. As of early 2025, one in five UK consumers and small businesses use open banking services. But across the EU, uptake remains patchy. The next wave of regulation is aiming to change that. The EU’s PSD3 and Financial Data Access Regulation (FIDA), along with the UK’s upcoming Smart Data regime, are laying the groundwork for open finance, expanding access beyond current accounts to include credit, pensions, savings, and insurance.
The shift is clear. Success will hinge not just on sharing data, but on delivering seamless, secure, and consent-driven user experiences.
What to watch out for
With fundamentals now firmly in focus, the second half of the year will be defined by strategic execution, regulatory clarity, and smarter growth. Key developments to watch include:
- Bank-led stablecoin pilots: Expect more traditional banks to roll out internal pilots as the EU and UK finalise regulatory frameworks.
- Consolidation across BNPL and BaaS: Smaller players may exit or merge, while incumbents eye acquisition to strengthen embedded finance capabilities.
- Surge in tokenisation infrastructure: Token-first ecosystems are accelerating. Mastercard’s plan to phase out manual card entry by 2030 has set the tone, issuers are now racing to tokenise cards across mobile wallets, wearables, and browser checkouts to boost security and cut fraud.
- Smart Data Progress: The UK’s move from open banking to open finance will pick up pace, with government policy and private innovation converging.
Fintech in Europe is no longer about who can move the fastest. It’s about who can build the deepest.
The sector is recalibrating around sustainable growth, smarter regulation, and infrastructure that can scale. The winners in this new era won’t be those shouting the loudest, but those solving the hardest problems: security, trust, access, and integration.
