Incumbents being attacked by large well-capitalized players and innovative emerging companies. Yes - there will be blood.
The prevalence of online commerce coupled with the promise of mobile phones as a payments disruptor has markedly changed the perception of the payments space among investors (venture capital, private equity and angel investors). Since just the beginning of 2010, we’ve tracked $1.94 billion invested into 309 payments deals through Q2 2012.
The increasing number of deals and financing is the result of payments now being viewed as much more “up for grabs” than it has in the past. Just a few years ago, when one thought about payments, familiar brands like American Express, MasterCard, Visa and First Data would have come to mind, and challenging them and their network effects might have seemed like a fool’s errand. However, in short order, the emergence of new technologies and some unusual suspects entering the space has made the payments landscape busier, more complicated and a great deal more uncertain. Retailers like Walmart & Target, Telcos like Verizon and AT&T, Handset makers like Samsung and Apple and tech giants like Google and Amazon are all angling for a piece of payments in addition to the payment networks and financial services firms. And their competing approaches to payments suggest that sacred cows such as the “discount rate” may be casualties in the coming disruption.
These competing, different and still evolving approaches to capturing the payment space have also created a sense of opportunity which has led to an increased number of investors financing emerging companies attacking the payments space. Payments deal activity in mobile and online payments has been consistently strong for the last year and a half, with an average of 37.5 deals per quarter since Q1 2011. In that same period, funding per quarter has averaged nearly $250 million per quarter.
Because funding totals can swing wildly because of a large financing or two, deal activity is a better gauge of industry health, and deal activity for mobile and online payments has never been higher than it has been in the first two quarters of 2012.
As can be seen below, the vast majority of financing within payments over the last year has gone to early stage companies with mobile payments being a bit earlier stage overall relative to online payments. We’ll continue to monitor the payment space as the data suggests that the level of investment and M&A will continue to increase significantly over the next 12 months.