3 minute read 12 Nov 2020
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How contactless payments are shaping 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.

3 minute read 12 Nov 2020

Venture capital deals in payments this quarter dropped almost one-quarter, with cautious investors sticking to late stage funding rounds.

In brief
  • In Q3, 117 venture capital (VC) deals were announced.
  • Total VC deal value for Q3 was US$3.3b.
  • US$650m investment in Klarna was the biggest VC deal of Q3 2020.

During Q3 2020, deal value and volume declined 24% and 3%, respectively, with the pandemic driving a general drop in valuations.

Venture capital deal Q3 2020

Payment acceptance systems attracted around one-third of deals

VC investors were focused on later – series C – round funding this quarter, followed by series B and venture rounds. Most targets were payment acceptance (31%) and payment issuing companies (21%).

No of deals by funding stage

North and Central America continued to dominate both in number and value of VC investments:

Region Deal volume Deal value
North and Central America 37% 38%
Europe 31% 26%
South America 16% 6%
Asia 15% 21%

The biggest deal this quarter was the raising of US$650m in an equity funding round by Klarna, a Sweden-based payment champion active across the value chain and now valued at US$10.7b. The round was led by Silver Lake, alongside GIC, BlackRock and HMI Capital. The funding will help Klarna invest in offerings, expand its geographic presence, and build momentum as it prepares for the possible initial public offering (IPO) the company has hinted at.

Investment by region Q3 2020

Investors focus on payments issuers

Another major deal this quarter was the US$300m investment in Neon, a Brazil-based provider of virtual and automatic cards. The round was led by General Atlantic, alongside Banco Votorantim, Monashees, Omidyar Network, Propel, Quona and Mabi. The funding will be used to expand Neon’s product offering, including the development of credit modalities and investment alternatives to customers, as well as advertising and marketing campaigns, technology infrastructure, and expanding its talent base.

US-based FinTech Greenlight has built an all-in-one money management platform for families that aims to help parents arm their children with financial management skills. Its rapid growth since launching in 2017 helped it attract this quarter’s third biggest investment – US$215m – in a round led by Canapi Ventures, alongside TTV Capital, BOND, DST Global, Goodwater Capital, Fin VC and Relay Ventures. The funding lifts Greenlight’s valuation to US$1.2b and will help it expand its reach, improve the app and launch new investing tools.

Investment by sectors Q3 2020

VC investment trends

Looking ahead to the end of 2020 and early months of 2021, we expect:

  • VC investors to continue to focus on late stage deals, which are generally seen as safer bets.
  • Payments technologies to attract more interest, as the COVID-19 pandemic accelerates the shift to contactless payments.

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Summary

The pandemic has driven a decrease in payments deal value and volume, but investors are still interested in acquiring those companies positioned to make the most of the growing shift to digital payments.

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.