Why investor confidence is returning to the payments sector

Despite rapidly increasing COVID-19 cases globally, we observed a rush of venture capital investment in payments this quarter. 

In the global payments sector, total deal value and volume in Q2 2020 was up 16% and 66% respectively from last quarter, with the US accounting for almost half of this quarter’s funding volume.

Venture capital (VC) Q2 investment activity at a glance:

• 116 VC deals
• US$4.3b total VC deal value
• US$600m investment in Stripe was the biggest VC deal of Q2 2020

Alternative payment systems lead deal recovery

As seen last quarter, most of Q2’s VC activity was in venture and “seed” funding, leading “other” rounds of funding, which includes subsequent finance rounds and debt financing. Another trend continued from Q1 was the focus on alternative payment systems and payment processing (30% and 26% of the total number of investments respectively). In terms of value, payment processing (24%) and payment acceptance devices (19%) were financed most often.

North and Central America led the quarter’s VC, recording the most investments (30%), followed by Asia (29%), and Europe (22%). The region also accounted for 48% of total deal value, with Asia contributing 25% and Europe 23% of deals.

Investors focus on payments pain points

Deal activity was driven by a mix of B2B and B2C payment companies addressing pain points in the payment landscape. We also saw a wave of companies seeking financing amid the COVID-19 pandemic.

The biggest deal this quarter was the US$600m investment in Stripe by Andreessen Horowitz, General Catalyst, GV and Sequoia. The extended Series G Round of funding brings the US-based payment provider’s total value to US$36b. Stripe plans to invest in expansion, making the most of an uptick during the switch to online payments during COVID-19.

Another major deal this quarter was the US$500m investment in UK-based Travelport Worldwide by affiliates of existing owners, Siris Capital Group, LLC and Evergreen Coast Capital Corp. Travelport says the funding will provide it with the liquidity it needs to keep operating amid COVID-19 and enhance its existing technology platform to be ready to grow once travel resumes.

Q2’s third biggest deal was the US$191m investment in Chinese bank infrastructure FinTech Shenzhen InfoGem Technologies, via a private placement of up to 21.1m shares. The company has used the funding to progress projects in a digital transformation solution, intelligent equipment industrialization and research and development, as well as to supplement working capital and repay bank loans.

VC investment trends

We expect several trends to dominate the remainder of 2020:

• Funding activity may slow as COVID-19 cases grow in the US, which accounted for almost 50% of total investment value this quarter.
• A large amount of capital will still be invested. In 2019, total fundraising reached US$46.3b across 259 fund vehicles.
• VC investors may be particularly attracted to payments technology players, analytics companies and those specializing in the healthcare sector.