In H1 2022, fintech encountered turbulence. Funding dollars dropped, valuations fell and layoffs followed. Here in the Nordics and Baltics, the fintech birthrate sits at its lowest level in 18 years.

In contrast to this summer’s soaring temperatures, some are wondering if a fintech winter is already underway.

To better understand the state of fintech, Lighthouse FINITIV contacted 11 investors from our Investor Circle. Launched in 2021, Investor Circle is a network of 50+ Nordic and Baltic VCs who share our commitment to strengthening the region’s tech ecosystem. Investors we interviewed acknowledged the difficulties but focused on three reasons for optimism.

“During downturns, fewer companies get funded. Hence those who do might find themselves in a stronger position with less competition,” said Erik Lindblad, a Partner at Stockholm-based Zenith Venture Capital. “Simultaneously, layoffs flood the ecosystem with talent. This means that surviving fintechs can raise their talent caliber significantly. We’re seeing this happen today.”

Other investors agree that tough times create more resilient companies–if founders can rise to the occasion. “Incoming employees and venture investors both expect more from downturn founders,” says Dmitrij Sosunov, a Partner at Vilnius-based FIRSTPICK.vc. “Both look for signs that a team can weather the storms ahead.” Startups with credible brands and low burn position themselves to capitalize on the talent opportunity.

Many investors think banks will outsource more jobs to startups during tough times. “Fintech was born from the last economic downturn precisely because downturns make problems obvious,” says Gwen Sandberg, an Invesment Manager at Helsinki-based Inventure. “The best fintechs I see are collaborating with big companies like banks to verify real problems and scale real solutions.” Investors encourage startups to look for evidence of real problem-solving in the form of early revenue. Banks are especially happy to share the cost of problem-solving with startups when the resulting partnership helps both sides strengthen end-customer relationships.

During downturns, B2B fintech businesses often benefit from increased customer urgency. “The opportunity for B2B fintech is still largely untapped, there’s complexity and long sales cycles, yet by us being embedded in the industry we can often build stronger commercial conviction early compared to B2C,” says Oliver Sjöstedt, a Principal at Upfin.VC, a fintech-focused investor launched in Copenhagen this year. “We’re following several B2B megatrends now, including B2B payments, embedded finance and B2B blockchain.”

Within B2B, some investors see specific opportunities in the small merchant space. Many of Europe’s 22.6 million SMEs have low technology penetration; for instance, just 30% of SMEs have a payment system integrated to a digital POS, according to research done by Invenio Growth Consulting. These merchants may soon be faced with a decision to adapt or die. Investors are betting that fintechs focused on small merchants will soon find a host of eager buyers. “There has never been a better time to launch a mobile POS solution,” said Camille Zivré, a seed investor at byFounders. “This technology helps smaller merchants accept payments without investing in expensive hardware that gets outdated quickly.” In June, byFounders led a 4m EUR seed round for Vibrant, the Danish mobile POS solution that won the Lighthouse FINITIV Program in May.

Mastercard Lighthouse FINITIV is a search and partnership program focused on finding the next fintech unicorn. Our goal is to strengthen the financial services ecosystem by pairing the energy and innovation of promising Nordic & Baltic fintechs with stability and distribution at large banks.

Fintechs can apply to join the program until Friday, 12 August 2022.

Investors can apply to join the Mastercard Lighthouse Investor Circle and receive invitations to our investor demo days and invitation-only events.