2013 saw continued interest by venture capital and corporate venture investments into payments companies ranging from mobile point of sales solutions to parking payment apps to international money transfer. To clarify, companies included in this analysis span the following markets:
- Mobile and Online Payments – Mobile and online billing and payments startups utilize Internet technologies and the penetration of mobile phones to allow customers to use their cell phones as extensions of their wallets.
- PoS Solutions – These solutions focus on improving traditional point-of-sale terminals in brick and mortar stores and fall primarily in two camps: NFC (near field communication) and mobile point-of-sale technology.
- Money Transfer – Money transfer services involve the direct movement of money internationally.
- Services for the Underbanked – A large portion of the world’s population does not have access to traditional banking or payment solutions and represents a massive opportunity for organizations who are leveraging solutions such as prepaid cards, cash-based services and direct mobile billing.
- Transaction Processing – Transaction processing including both traditional point-of-sale payment processing and card not present processing.
This brief examines venture capital financing activity, the most active investors and exit landscape for the growing batch of startups hoping to disrupt the payments industry.
Payments Financing Activity
In 2013, payments startups raised $1.2 billion in funding across 193 deals. On a year-over-year basis, venture capital funding and deals to payments tech companies ticked up 5% and 6%, respectively, from 2012 levels.
Deal growth in the payments marketplace has been heavily concentrated at the early stage (Seed/Series A). Over the past two years, seed activity has taken 42% of all deals in the payments space. When we look at payments startups that first received a seed round between Q1 2010 and Q3 2012, we see that 35% have already gone on to receive Series A funding.
Overall payments tech deal activity has trended upward as well, with each of the past four quarters seeing over 60 deals. Among the largest U.S.-based payments deals in 2013 were $50M rounds to retail point of sales EMN8 and Zuora, an online subscription billing and payments startup, backed by investors including Benchmark Capital and Greylock Partners.
Boosting funding growth in the payments space last year were major cash injections into international companies including such as a the $75M investment into UK mobile payments startup Powa Technologies. As shown in the chart below, over 1/2 of all payments deals in the past two years were outside of major U.S. venture hubs. Silicon Valley firms took 17% of deals, while New York saw 9% and strong YoY deal growth in the payments space.
The Top Investors
Since 2012, there has been a diversity of active investors in the payments space spanning pure-play VCs to the corporate venture units of financial services firms (American Express Ventures, Citi Ventures) to those of cash-rich tech companies (Google Ventures, Intel Capital). It is clear that a variety of corporates, beyond those you might think of as finance/payments companies, see massive opportunity in the payments space. The most active investors in payments over the past two years have been Accel Partners, which counts Braintree, Gumroad and GoCardless in its portfolio and Andreessen Horowitz which has invested in firms including Dwolla, Boku and Jumio.
The chart below highlights a handful of the most active venture capital investors over the past year, two years and five years in the payments marketplace.
To keep up, stay ahead of or at least not fall behind the innovation in payments, financial services firms including AmEx, Citi and MasterCard have all been active as well investing in Square and iZettle. Interestingly, American Express has invested in competitors in the space – iZettle and SumUp. Both of these firms compete with Rocket Internet backed Payleven and of course Square. Interestingly, the most active corporate investor in the payments space was not in financial services but Intel Capital, which has done a handful of deals since the start of 2012.
On a year-over-year basis, the payments space has seen a 16% drop in M&A and IPO activity. While 2013 saw a number of small-ball payments acquisitions for both technology and talent, there were a few notable exits including PayPal’s $800M acquisition of Braintree and FIS’s buyout of Ignition Partners-backed mFoundry. Moving forward, the anticipated 2014 IPO of Square may provide another shot in the arm for the payments industry.