- Payments startups so far this year have attracted $22.4 billion worldwide from venture investors, already surpassing the $14.3 billion raised last year and heading toward breaking the $25.6 billion record for fundraising set in 2018, according to a third-quarter payments report from the research firm CB Insights. The U.S. is leading the pack among regions raking in the money.
- “I believe that funding is probably going to surpass 2018," CB Insights Senior Fintech Analyst Anisha Kothapa said in an interview. "It’s on that track right now.”
- While the $5.9 billion worldwide third-quarter venture capital bonanza this year easily surpassed the $4 billion raised in the year-earlier quarter, it didn't outdo the $10 billion collected in the preceding second quarter this year, according to CB Insights.
Digital payments companies have been transforming the financial industry in recent years as companies and consumers sought easier, faster payment methods. The COVID-19 pandemic supercharged the trend as companies and consumers increased their use of such tools from home offices and opted for contactless options to avoid spreading the deadly virus.
Among the U.S. payments companies that have raised money so far this year, SpotOn reported a significant haul, landing $300 million in September just months after raising $125 million in June. The San Francisco-based company targets its payments software applications at small and mid-sized restaurant and retail enterprises.
New York-based Ramp, a software company that aids companies in managing their corporate spending, also raised $300 million in August.
The U.S. is leading the pack among payments fintechs luring money, pulling down $1.3 billion during the third quarter, the report showed. Asian companies drew the second-largest haul during the quarter, $1.1 billion, while European companies landed $859 million.
The high valuations are being pumped up by bigger rounds of fundraising, including larger late-stage fundings at higher valuations, the report said. In the third quarter alone, there were 20 "mega-rounds" for the industry in which payments startups raised more than $100 million for an 82% increase over the quarter last year.
With all the funding, the payments industry has rounded up 57 unicorns worldwide, including 8 'born' in the third-quarter, meaning the venture investments have created 57 privately-held payments companies with valuations over $1 billion, based on the capital they've collected, according to the report.
“These startups are actually closing much larger deals at much higher valuations," Kothapa said in the interview.
All the capital flowing into the payments space is helping drive record acquisitions in the payments sphere too as companies expand to gain scale and compete. Merger and acquisition research firm Dealogic recorded 125 payments acquisitions through early September, compared to a record 133 deals for the industry last year.
While the number of acquisitions is likely to be a record, the annual value of acquisitions is looking less likely, with just $48.9 billion in deals logged so far, compared to the prior record in 2019 of $136.2 billion. That year, several dueling legacy payment processors, including FIS, Fiserv and Global Payments, closed multi-billion-dollar transactions.