3 minute read 21 Jun 2021
Businessman looking at illuminated central district of hong kong

Why the digital payments boom is attracting venture capital investment

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 21 Jun 2021

Surging digital payments dominated Q1’s venture capital investment activity.

In brief
  • Deal value rose sharply in Q1 2021, largely driven by Stripe’s funding round.
  • Alternative payment systems are the biggest targets for VC investment, attracting almost half of all deals.
  • More investment is expected in blockchain as major payment players adopt cryptocurrencies.

Surging digital payments helped drive funding for Stripe, which dominated Q1’s venture capital investment activity.

Payments venture capital Q4 2020 investment activity at a glance:
  • 125 venture capital (VC) deals
  • US$5.1b total VC deal value
  • US$600m investment in Stripe was the biggest VC deal of Q1 2021
Venture capital deal Q1 2021
Alternative payment systems remain the most attractive VC targets

VC deal activity in Q1 2021 largely followed trends seen last quarter, but while deal volume rose only marginally (2.5%), we saw a substantial increase (54%) in deal value.

No of deals by funding stage

As in Q4, alternative payments systems were the biggest targets, accounting for 56% of funding value with large tickets for alternative payment methods aggregator PPRO and cross-border payments platform Payoneer. Payment acceptance devices accounted for 14% of VC funding while processing was the focus of 13% of deals.

As in Q4, alternative payments systems were the biggest targets accounting for 56% of funding value with large tickets for alternative payment methods aggregator PPRO and cross-border payments platform Payoneer.
Florian Seeh
Senior Consultant, Strategy, EY-Parthenon GmbH

Most funding activities were contributed jointly by venture seed funding rounds, followed by series A funding.

In this quarter, Europe and North and Central America attracted the largest number of investments (35% each), followed by Asia (17%) and the Middle East and Africa (9%). In terms of value, North and Central America accounted for 41% of total deal value followed by Europe, Asia, and the Middle East, Africa at 33%, 19%, and 4% respectively.

Region Deal volume Deal value
North and Central America 35% 41%
Europe 35% 33%
South America 2% 1%
Asia 17% 19%
Middle East, Africa (MEA) 9% 4%
Investment by region Q1 2021
Stripe deal dominates the quarter

The biggest deal this quarter was the raising of US$600m in H round funding by Stripe, an Irish-American financial services, and software-as-a-service company, valuing it at US$95b. The round was led by Sequoia Capital and other investors. The funding will help Stripe expand operations in Europe, support increasing demand from the region and expand its global payments and treasury network.1

The second-biggest deal this quarter was the US$450m investment in UK-based payment processing company, Checkout Ltd, which is now valued at US$15b. The company offers an online payment platform focused on accepting transactions, currencies, and payment methods through one integrated platform providing complete transparency across the entire payment value chain. Tiger Global Management led the round, with other investors including Insight Partners and Green Oaks Capital. Checkout plans to use the funding to enhance its global business.2

The US$300m investment in US-based fintech firm Payoneer rounded out the quarter’s top 3 VC deals. Payoneer offers online money transfers, digital payment services and provides customers with working capital. The funding round was led by T. Rowe Price Group, Wellington Management Group, and others. In February 2021, Payoneer announced a plan to go public, saying it had entered into an agreement with special purpose acquisition company (SPAC) FTAC Olympus Acquisition Corp. (NASDAQ: FTOCU) for reorganization.3

Blockchain technology will attract increased investment, fueled by major financial services companies adopting cryptocurrency as a payment method and more start-ups entering this market.
Kai Rövenich
EY Parthenon Financial Services Strategy & Operations Senior Consultant
Investment by sectors Q1 2021
VC investment trends

Throughout 2021, we expect three trends to dominate VC investment in payments:

  • Blockchain technology will attract increased investment, fueled by major financial services companies (such as PayPal, Visa, JPMorgan) adopting cryptocurrency as a payment method and more start-ups entering this market.
  • SPAC acquisitions as a fast way to go public will become more common, following Payoneer’s lead.
  • Small offline merchants will once again become a focus of innovation and funding activity as vaccination campaigns gain traction and economies begin to move past COVID-19.

Lead through the COVID-19 crisis

We have a clear view of the critical questions and new answers required for effective business continuity and resilience.

Explore

Contact us for immediate support

Gain access to our help with crisis management, business continuity and enterprise resilience.

 

Contact

Summary

Venture capital investment in the payments sector surged in Q1 2021. The increase is largely due to a funding round executed by Stripe but also reflects more investor interest in alternative payment systems.

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