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Expanding payments companies prime targets for VC investment

March 1, 2022

Young African American female customer wearing a protective face mask making a contactless payment using her smart phone in a clothing store

Jonathan Kriegel

CEO

Payments companies are hot prospects for venture capitalists as investors bet that the momentum brought about by the pandemic-driven digital and mobile commerce adoption is more likely just to slow down slightly rather than fizzle out.

CB Insights latest State of Fintech Global 2021 report tracked a record year for Fintech companies, which accounted for US$1 of every US$5 of global venture funding. KPMG’s bi-annual Pulse of Fintech report on fintech investment published in February 2022 found that payments companies attracted the most funding among fintech subsectors in 2021, attracting almost US$52bn in total and up from just over US$29bn in 2020.[i]

There were 685 deals for payments companies that attracted US$32.7bn of funding in 2021, according to CB Insights’ calculations. That was significantly more than the highest number previously recorded in 2019 (542), when investment levels reached almost US$26bn. US start-ups led the charge, accounting for around 40% (US$13.3bn) of the global total, followed by their counterparts in Asia, which raised around US$8bn (24%). After a robust first half of the year, when investment levels topped around US$5bn in Europe, funding fell away considerably to US$2.7bn in the H221.

The median deal size for payments companies also reached an all-time high of US$11m in 2021, up 57%. The investment appears to have pivoted away from start-ups and firms in the early stage of their formation but favored mid-stage payment companies that accounted for 24% of the total, up from 18% in 2020.

Q4 funding favors US payments firms

In the fourth quarter, US companies represented six of the biggest equity deals for payments fintechs, the most prominent being cryptocurrency specialist MoonPay. Founded in 2019, it received US$555m of Series A investment from backers including Coatue Management, Tiger Global Management, New Enterprise Associates, Blossom Capital, and Paradigm last November, leading to a valuation of US$3.4bn.

Identity verification and fraud management firm Socure earned a valuation of US$4.5bn in the same month. Socure received US$450m of Series E funding from investors including Bain Capital, Tiger Global Management, Commerce Ventures, Scale Venture Partners, and Sorensen Ventures. Another round of US$425m Series D backing for global payroll and compliance hiring service Deel pushed its valuation out to US$5.5bn.

Asia and the UK make up the remainder

Three Asian companies also made the top ten in the fourth quarter, making the top four equity deals for any fintech in the region. The largest slice of cash went to Singapore-headquartered start-up Atome. Founded in 2019, the buy now pay later (BNPL) firm received US$500m of corporate minority funding from global bank Standard Chartered last October. Indian payments solution provider Razorpay was valued at US$7.5bn after a US$375m round of Series F investment from Alkeon Capital Management, Lone Pine Capital, Technology Crossover Ventures, GIC, and Sequoia Capital India.

Completing the trio was Mynt, the Filipino payments, money transfer, and loans platform set up by incumbent telco Globe Telecom in partnership with the Ayala Corporation and Ant Financial. Mynt was given an estimated purchase price of US$2bn after investors including Insight Partners, Warburg Pincus, Bow Wave Capital, and Amplo took a US$300m private equity stake in the company.

Europe’s only representative in the top ten was SaltPay, a UK-based back-office payments specialist that received US$345m of Series D funding. KMPG described 2021 as an “incredibly strong” year for UK fintech companies, which attracted more funding than their counterparts in the rest of Europe, Middle East, and Africa regions combined.

The wave of investment in the fourth quarter created 11 new privately-held payments unicorns with valuations exceeding US$1bn, taking the overall total to 69. Payments companies now represent some of the most widely tipped candidates for investments. For example, Motley Fool recommended Square, PayPal, and MercadoLibre as ideal additions to an investor’s portfolio in February this year.[ii]

Investors back firms in expanding market sectors

Such a high level of investment and VC interest is relatively simple. The number of people using digital payment apps and services has increased dramatically over the last few years as more consumers switched to online shopping, much of which is conducted using smartphones.

Statistics compiled by GWI in the third quarter of 2021 suggest that 96% of adult Internet users across the globe (those between the ages of 16 and 64) own a smartphone, around 58% of which purchased a product or service online and 25% used an OEM mobile payment service such as Apple Pay, Google Pay or Samsung Pay. Statista’s Digital Market Outlook estimated that 3.8bn people made a digital payment of some form or other in 2021, the combined value of which rose 24% year on year to be worth US$1.3bn.

While that growth was turbocharged by the economic lockdown restrictions introduced during the pandemic, the upward trajectory is expected to continue, albeit at a slower pace. Juniper Research predicts that the global value of mobile commerce (mCommerce) payments will rise to US$3.1tn by 2025, for example. As long as people keep buying goods and services with their smartphones, the demand for payments apps and the value of transactions they process will continue to head further north.


[i] Record year for number of UK M&A, PE and VC fintech deals completed – 603 in 2021 up 28% from 470 in 2020, KPMG, 7th February 2022

[ii] Investing in Top FinTech Companies, The Motley Fool, 2nd February 2022

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