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Payments sector leads fintech investment in 2020

The global pandemic has only enhanced interest in the payments space given the rapid acceleration of digital trends and demand for alternative payments models — driving activity in the challenger banking space and in the B2B sector.

Despite the steep decline in total investment caused by a lack of multibillion dollar M&A deals such as the 2019 acquisition of Worldpay by FIS, the high number of deals seen in 2020 highlights the attractiveness of the sector to investors.

Total global investment activity in payments

The payments space will continue to be a big focus for investors around the world. Open banking, in particular, will drive increasingly integrated payments solutions. It’s currently mandated or regulated in a number of jurisdictions, primarily in EMEA, but we’re going to start to see it make its way across the pond and into North America, which will further support and facilitate banking-as-a-service platforms.

Chris Hadorn
Global Head of Payments,
Principal, Financial Services, KPMG in the US

COVID-19 igniting the payments sector

The global pandemic has only enhanced interest in the payments space given the rapid acceleration of digital trends and demand for alternative payments models, driving activity in the challenger banking space and in the B2B sector.

Increasing geographic diversity

Payments was a hot area of investment, with an increasing number of countries attracting large deals, including the US (US$1.3 billion — Paya, US$530 million — Chime), Sweden (US$650 million — Klarna), the UK (US$580 million — Revolut) and Poland (US$587 million — Polskie ePlatnosc) in H2’20. US$200 million raises by STC Pay and dLocal led them to become the first fintech unicorns in Saudi Arabia and Uruguay. 

Growing focus on embedded payments solutions

Big tech platform companies and other non-financial services companies are increasingly offering a range of embedded financial services offerings. During H2’20, Stripe announced partnerships with Goldman Sachs, Barclays and Citigroup to provide embedded financial and payments capabilities to users via their platform.1

B2B payments gaining traction despite complexity

B2B services is seen as a target rich and underserviced area to investors, given the needs of small businesses related to liquidity, funding, money movement, and other banking services. While many B2B focused payments companies initially offered simplistic products like invoicing or remittance exchange, they are now working to expand their capabilities and value to support end-to-end transactions.

What to watch for in 2021

  • Healthy market for IPO exits of payments firms and rebounding M&A
  • Growth of banking-as-a-service platforms and embedded payments solutions
  • Increasing focus on “buy now, pay later” services
  • Enhanced focus on open banking related opportunities

Footnote

1 https://www.reuters.com/article/stripe-banking-idUSL4N2IJ3PL