Visa’s US$963m acquisition of UK payments start-up Currencycloud follows a record quarter for global venture capitalist backed funding for fintech companies. The deals highlight the increasingly high levels of investment behind companies engaged in online financial services providers in the wake of the coronavirus pandemic when large numbers of consumers shunned cash and debit/credit card transactions favouring digital and mobile payments.
Founded in 2012, Currencycloud develops the remittance application programming interfaces (APIs), which power multicurrency wallets, currency exchange services, money transfer and account management for online, digital and mobile app-only banks and fintechs like Monzo, Moneze, Starling, Revolut and Dwolla. Visa has owned shares in the company since 2020 after it partook in a Series E investment round alongside the World Bank Group’s International Finance Corporation, French bank BNP Paribas, the SBI Group and Thailand’s Siam Commercial Bank, which collectively raised around US$80m.
The Asia Pacific (APAC) region became a prime area of focus for London-headquartered Currencycloud with the opening of its Singapore office in April[i]. At that time, Currencycloud had built about 85 different APIs and was processing over US$3bn of international payments per month, with APAC fintech customers including TranSwap, NIUM, AirWallex, XTransfer, WireBarley, PicoPay and Geoswift.
The acquisition is the second big deal of the year for Visa, which is keen to offset competition to its established card networks by boosting its own cross border digital money transfer and virtual wallet capabilities. The company agreed to buy Swedish fintech Tink for US$2.1bn in June as it pushes further into the open banking space.[ii] The start-up reached more than 250m customers across 18 markets, with its APIs used by over 10,000 developers.
Visa had agreed to acquire another company specialising in the development of APIs, which make it easier to connect to users bank accounts – San Francisco-based Plaid – for US$5.3bn back in January[iii]. Since then, Plaid has received another US$425m of Series D investment, boosting the company’s valuation to a reported US$13.4bn. The US Department of Justice sued to block the deal due to concerns it would limit competition in the payments industry, and both parties subsequently decided to end the merger.
Fintech funding levels set new Q2 record
Plaid’s funding and valuation scale illustrated a trend that saw venture capitalist firms pouring unprecedented amounts of cash into fintechs. CB Insights’ State of Fintech Q2’21 Report suggests the three months ending June this year was the most significant funding quarter for fintechs on record.
Total global VC-backed funding reached US$30.8bn, almost triple the value invested in Q220 (US$10.5bn) and up 30% on Q121 (US$23.6bn). The number of deals also increased 20% yearly to 657 in Q221, surpassing 646 in the previous quarter. So-called “mega-rounds” drove that growth, with 88 deals worth US$100m or more delivering 70% of the US$30.8bn total.
The value of funding for payments companies specifically grew 140% year on year and 25% quarter on quarter to just over US$8bn. Mega rounds accounted for over 80% of that total, highlighting the level of confidence that VCs have in their’ potential for rapid commercial expansion post-pandemic. The investment was spearheaded by support for Latin American firms. Those included Brazilian payment gateway network firms EBANX (US$430m private equity) and Cloudwalk (US$190m Series B) as well as Mexican digital payment and commerce platform Clip (US$250m Series D), cross border payments firms d.local (US$150m undisclosed) in Mexico and Kushki (US$86m Series B) in Ecuador.
Backing for eCommerce payment fraud specialists
VCs also put substantial amounts of money behind companies that specialise in combatting eCommerce payment fraud. New York-based Forter, for example, raised US$300m of Series F investment. The company provides a plug and play fraud solution platform that analyses user profile and behavioural data to spot fraudsters and approve genuine consumer transactions in real-time. Another US start-up, Signifyd, raised US$205m for a fraud platform that combines machine learning and human analysis to provide financial guarantees against approved orders.
Payment fraud increased in parallel with the sharp rises in eCommerce transaction volumes and value during the pandemic. The latest FIS Worldpay Global Payment Risk Mitigation report estimated that 38% of online merchants lose 6% or more of their turnover to payment fraud, and 44% spend over 6% of their profits fighting the problem (read more in DOCOMO Digital chief executive’s blog Combatting payment fraud: a big challenge for online merchants here).
As growing numbers of eCommerce merchants expand their online sales, demand for fraud prevention solutions is expected to soar in parallel, a trend not lost on venture capitalists keen to supply the capital to help anti-fraud start-ups scale their businesses amidst this growth cycle.
[i] Currencycloud opens Apac HQ in Singapore, Finextra, 22nd April 2021
[ii] Visa Buys Swedish Fintech Tink for More Than $2 Billion, Wall Street Journal, 24th June 2021
[iii] Plaid valuation tops $13 billion in first funding after a scrapped $5.3 billion merger with Visa, CNBC, 7th April 2021