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Mobile Payment Start-ups Prime Targets for Fintech Investments

September 8, 2020

The latest State of Fintech report from global tech market intelligence firm CB Insights suggests that mobile payment platforms and electronic wallet (eWallet) apps being widely used by consumers for pandemic-related eCommerce purchases continue to receive strong financial backing from investment companies. 

The report, which covers the three months ending June 2020, saw fintech funding reach US$9.3bn in the second quarter of 2020, up 17% on the preceding quarter and on a par with the fourth quarter of 2019. That’s despite the number of deals continuing to decline; however, with a smaller number of more mature start-ups receiving larger chunks of investment. Indeed later stage deals (Series B to E+ rounds) gained a bigger share of the total as support for fintechs looking for seed, angel and Series A backing shrank.

Most backed fintech start-ups

South Korean payment service provider Toss continues to be one the most heavily backed fintech start-ups in terms of investment, with funding to date totalling US$261m. The company now plans to raise another US$200m to fund its expansion into online banking and security trading services. Toss is owned by Viva Republica, which also leads the consortium that acquired the payment gateway service unit of local mobile network operator (MNO) LG Uplus for US$303m this month [August 2020].

Founded in 2015 Toss Pay counted 10m registered users in 2018 and was on track to process US$18bn of transactions by the end of that year. Like others, it started as a mobile peer to peer (P2P) payment and money transfer app before adding extra features like credit access and management, loans, insurance and investment through partnerships with banks and other financial service providers. 

Elsewhere Stripe, a payments process provider that supports the electronic transfer of money from customer’s (or issuing) bank into the merchant’s (acquiring) bank as payment for goods or services brought with a credit card, was also heavily backed by investors including Google Ventures, Sequoia Capital, General Catalyst and Andreessen Horowitz.

Stripe also provides its own payment gateway – the software application needed to accept credit card payments online – with support for Visa, MasterCard, American Express, Discover, and several different foreign credit card networks, along with mobile wallets like Google and Apple Pay.

Other recipients of funding include Indian converged payments solution provider Razorpay and Dubai-based Mamo Pay which was set up by three former Google employees as a money transfer app for the unbanked within the Middle East and North Africa (MENA) region. Investors also backed Nigeria’s Flutterwave, a payment gateway that allows its customers to make online payments in multiple African countries directly from their eWallets.

Big tech firms expanding into emerging markets

CB Insights also highlighted how big tech firms investing heavily in payment products as they expand into emerging markets like Brazil and India. 

Facebook-owned WhatsApp is finally set to launch its payments service in India two years after it was first announced. The company faced complications around data localisation issues that clash with the National Payments Corporation of India (NCPI) rules, and only received regulatory approvement for a nationwide WhatsApp Pay rollout in early 2020.

Progress was further hampered when the country’s competition regulator – the Competition Commission of India (CCI) – reviewed a compliant that bundling payment features into a messaging service that already has around 400m users would breach the country’s antitrust and competition laws. That antitrust complaint was rejected this month, however [August 2020], and WhatsApp Pay is now awaiting final approval for its debut from the Royal Bank of India (RBI).

WhatsApp’s fortunes in Brazil were similarly challenged by anti-competition concerns after the mobile payment service was suspended just a week after it was first launched in mid-June 2020. The country’s central bank suggested it had not had the opportunity to analyse WhatsApp Pay prior to its rollout through reports properly suggest it will shortly be allowed to recommence mobile payment services through its payment processing partnership with Cielo, and support debit/credit cards from Banco do Brasil, Nubank and Sicredi on the Visa and Mastercard networks.

Additional rollouts of WhatsApp Pay – which allows subscribers to transfer and receive money from other WhatsApp users and make purchases from small businesses without leaving the WhatsApp interface – will now begin with Mexico and Indonesia.

LatAm open banking infrastructure driving the expansion

Another trend saw venture capitalists put money into Latin American fintechs currently building the infrastructure to launch open banking services within the region, including BeeTech (Brazil), Minka (Colombia), belvo (Mexico), Galileo Financial Technologies (Mexico) and Promoteo (Brazil and Panama).

Open banking initiatives have been gathering pace in the region for the last couple of years. New impetus has come from the Coronavirus pandemic which has forced many bank branches and physical retail stores to close, leaving consumers with little choice but to adopt digital banking and online shopping in their place, many via their mobile phones.

Brazilian central bank Banco Central do Brasil recently outlined a four-stage rollout of new open banking standards and regulations for 2020/2021 designed to encourage greater competition in financial services and lower costs for customers. The same is true in Mexico, where the authorities have announced plans to let banks, financial services providers and eCommerce merchants connect and share data more easily through standardised application programming interfaces (APIs).

Loans, wealth management and insurance start-ups

CB Insights noted increased financial backing for challenger banks offering new credit, wealth management and insurance products, which some eWallet providers and telcos too have recently started to provide.

South Korea has already seen eWallet providers branch out into other areas of financial services provision as a direct result of the country’s recently introduced open banking regulation. Naver, for example, finalised plans to spin off Naver Pay into a dedicated financial services subsidiary – Naver Financial – in November 2019 as it expands into loans and insurance, backed by a reported US$418m of investment from Mirae Asset Daewoo. 

Kakao Pay too has expanded from being an eWallet provider to offer its own debit card, bank account and investment service. It recently partnered Baro Investment Securities to launch its own mobile currency and “wealth management platform” dubbed Kakao Investment, a Korean version of Alipay’s Yu’ebao.

Malaysian MNO U Mobile launched its GoPayz eWallet in November 2019, with a consumer version of the service allowing payments for insurance, financial services, e-commerce purchases, mobile phone top ups, utility payments, transport tickets and entertainment subscriptions.

CB Insights’ snapshot of fintech investment appears to demonstrate that the breadth of innovation in the financial services market remains undiminished even if venture capitalists are being more selective in the start-ups they favour. The Coronavirus pandemic continues to create unprecedented disruption within the global economy, but it also presents opportunities to expand into new markets and attract new customers for companies that can offer the right products and payment platforms to facilitate online purchases through consumer smartphones.

Telcos and MNOs may not have the internal development resources to build those products in house, but partnering those that do will go a long way to helping them capture a larger share of the market ahead of their competitors.

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