Fintech’s days as the undisputed darling of venture capital are finished. That’s according to a flash poll of Nordic and Baltic investors conducted by the Mastercard Lighthouse Program.

Since 2010, fintech fielded more unicorns than any other startup sector, according to CB Insights. But lately, fintech optimism has faltered. The F-prime Index, which tracks 55 publicly traded fintechs, lost over 85% of its value between July 2021 and July 2022 (see figure 1)–leading some to wonder if the fintech sector is losing investor interest, too.

Unsurprisingly, most investors still believe that fintech will stay a top sector for venture capital. However, when we surveyed 14 members of the Mastercard Lighthouse Investor Circle last month, we found a new degree of investor uncertainty surrounding fintech’s fall. When we asked investors if they believed fintech was losing relevance, many said “yes.” We also asked if crypto would bounce back after its big fall, and whether startup dealflow would increase significantly over the next six months. Finally, we asked investors to tell us which fintechs they were most excited to follow in 2023. Here’s what they said:

“Just the name ‘financial technology’ tells you the answer to this question,” says Joakim Hauge, a board member at Haflo, a Stockholm-based family office. “How could a category like that not stay super important?”

“Fintech is more important now than before,” says Oliver Sjöstedt, a Principal at Copenhagen-based Upfin. “Yes, many well known consumer fintechs are down–but they are just the tip of the iceberg. Beneath the surface, we’re seeing a bright future for the bulk of fintech including infrastructure and B2B solutions. Fintech has just begun to deliver on its purpose to make finance more sustainable, contextualized, and democratized.”

“The value of an active user isn’t what it used to be,” says angel investor, Hans Henrik Hoffmeyer. “ChatGPT got 10 million users in a week–and other services will do the same. Neobanks like Revolut which were valued on growth in customer count, are seeing major corrections. I expect half of BNPL companies to disappear in the next 12 months. Most VCs have already identified the 10% of their portfolio companies they are going to fund and the 90% they are going to abandon. Even strong companies will drown if they are not profitable very, very soon.”

“Fintech is still an exciting sector that we are monitoring closely,” says Kirill Tkachenko, a Trondheim-based Associate at Investinor, a sector-agnostic Norwegian VC. “However, the sector is heavily regulated which can negatively impact startup growth. Furthermore, many investors expected certain regulations (like PSD2) to benefit startups. We now know that those benefits did not meet expectations.”

Crises create winners. In some ways, the Global Financial Crisis of 2008 spawned today’s fintech industry. Fintech climbed to acclaim in 2015 as the Great Recession sparked consumer distrust toward financial institutions and slowed those institutions down with new regulations.

“Crypto is not like fintech,” says Stockholm-based angel, Ulrika Holm. “It’s a philosophy that threatens the roots of the traditional financial system. The fintech revolution was mainstream. It upgraded banks and created a symbiotic wave of startups. The creativity within crytpo will be much more niche and meet much more resistance. It’s hard to imagine the current financial system adapting to include crypto. My guess is that crypto will require a revolution or a generational shift.”

Last year, our research team noticed that founders weren’t starting many fintechs. This year, we wondered if a combination of layoffs and lingering dry powder would combine to create an explosion of new companies. Divided on the issue, most VCs said “no.”

“It’s funny to believe that becoming a VC-backed founder would be the default option for a tech person who has been laid off. Starting a company and running to pay your monthly bills is hard! Let’s not forget that it takes extreme courage, perseverance and talent to become a founder. I would expect a boom of freelancers/independent contractors much more than one of VC backable founders,” says Camille Zivré, a Principal at Copenhagen-based byFounders.

“People say there’s dry powder, but in reality, most VCs are not backing new companies,” says Hans Henrik Hoffmeyer. “They’re saving it to keep their stars alive through this uncertainty.”

“Our debt deal flow has never been better,” says Axel Bruzelius of Ark Kapital.  “Companies that should have raised debt all along are doing it now that equity is more expensive.”

Disclaimer: All statements above are based on interviews with investors and VCs and can not be interpreted as Mastercard advice.