3 minute read 23 Feb 2021
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How venture capitalists are responding to the changing nature of payments

Authors
Kai Rövenich

EY Parthenon Financial Services Strategy & Operations Senior Consultant

Payments strategy professional. Artificial intelligence enthusiast. Entrepreneurial mindset.

Florian Seeh

Senior Consultant, Strategy, EY-Parthenon GmbH

Payments and FinTech strategist. Entrepreneur at heart. Wants to make the world a better place.

Contributors
3 minute read 23 Feb 2021

Demand for digitization is encouraging investment in alternative payment systems.

In brief
  • Venture capital (VC) investment in payments in Q4 2020 was flat and concentrated in seed funding.
  • Alternative payment systems captured 26% of deals.
  • Expect mobile wallets, increased credit card use by businesses, and the monetization of data to drive future VC investment.

Despite flat VC investment in payments in Q4 2020, we expect customers’ demand for digitized payments to drive more activity through 2021. 

Payments venture capital Q4 2020 investment activity at a glance:
  • 116 VC deals
  • US$3.3b total VC deal value
  • US$700m investment in PhonePe was the biggest VC deal of Q4 2020
Venture capital deal Q4 2020
Alternative payment systems attracted around one-fourth of deals

Payments venture capital deal activity in Q4 2020 was flat, with value decreasing by 0.1% and volume falling by 1%.

No of deals by funding stage

Most funding activity was in the venture rounds, followed by seed funding and series A rounds. Alternative payment systems captured investors’ attention and were the focus of 26% of deals. Payment acceptance devices accounted for 16% of transactions and money transfer companies comprised 15% of deals.

As in previous quarters, North and Central America hosted the most deals, but it was Asia that contributed the most value in Q4.

Region Deal volume Deal value
North and Central America 35% 29%
Europe 26% 21%
South America 5% 3%
Asia 23% 35%
Middle East, Africa (MEA) 8% 12%
Investment by region Q4 2020
India-based digital payments platform wins most investment

The surge in Asian value was due to the quarter’s biggest VC deal – the US$700m venture funding round for PhonePe, an India-based developer of a digital payments application platform for smartphones. The funding round, led by Walmart and other prior investors, puts PhonePe’s post-money valuation at US$5.5b. The company will use the funding to maximize potential and move to the next phase of development.1

The second-biggest deal of Q4 highlights the investor appeal of payments systems. US-based Tipalti, which develops accounts payable automation and global mass payments software, attracted a US$150m investment at a US$2b valuation. Durable Capital Partners led the round, along with other investors, including Green Oaks Capital and 01 Advisors. Tipalti, which helps businesses manage suppliers, invoices, purchase orders, tax compliance, payments, billing, and other accounting services from a single cloud platform, will use the funding to build more tools, hire across all departments, and for business development.2

A US$150m investment in Brazilian FinTech firm Conductor Technology rounded out the quarter’s top three deals. The conductor, a provider of credit card and electronic payment processing solutions, will use the proceeds to fund organic and inorganic expansion across Latin America. The company is also eyeing a US listing.3 The round was led by Viking Global Investors and Sunley House Capital, an affiliate of Advent International.

Investment by sectors Q4 2020
VC investment trends

Throughout 2021, we expect three trends to drive VC activity in payments:

  • Mobile payment wallets will gain more traction as consumers further reduce their use of cash and physical cards and instead pay via smartphones and wearables. Banks will quickly find themselves in a battle to be “top of wallet” against competitors, such as Google Pay and Apple Pay.
  • Card penetration among businesses will see increased activity in B2B issuing. VCs have discovered the untapped market potential for card-based automation to streamline spend and expense processes within the mid-market business.
  • Monetization of data will become key to staying competitive in payments as consumers become less willing to pay for financial services. Providers will need to invest in data analysis capabilities, artificial intelligence (AI) and machine learning (ML) to power the advanced data handling that is becoming central to the financial industry.

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Summary

Alternative payment systems and seed funding set the pace for VC deals in Q4 2020. We expect mobile wallets, increased credit card penetration by businesses, and the monetization of data to drive future VC investment.

About this article

Authors
Kai Rövenich

EY Parthenon Financial Services Strategy & Operations Senior Consultant

Payments strategy professional. Artificial intelligence enthusiast. Entrepreneurial mindset.

Florian Seeh

Senior Consultant, Strategy, EY-Parthenon GmbH

Payments and FinTech strategist. Entrepreneur at heart. Wants to make the world a better place.

Contributors