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Payments startup funding: 2020 global recap

December 15 2020
by Jordan McKee


Introduction


The many challenges posed by the COVID-19 pandemic failed to put a damper on payments startup funding in 2020. Here we discuss key payments funding trends of the year while highlighting some of 2020's largest – and smallest – rounds.

The 451 Take

The challenges posed by the pandemic failed to put a damper on payments startup funding in 2020. Nine-figure funding rounds were common throughout the year. In fact, 15 of the 18 nine-figure rounds we highlight occurred after March, when the impact of COVID-19 was widely known on a global stage. All told, startups behind these 18 rounds amassed more than $4bn in venture funding this year. Fueling investments in 2020 were three key themes furthered by the pandemic that continue to reshape the competitive dynamics within the payments ecosystem: the rapid growth of digital commerce, the proliferation of emerging payment methods and the development of next-generation payments infrastructure.

Nine-figure funding rounds common despite pandemic


Despite the economic challenges posed by COVID-19, payment startups globally have fared well in attracting capital in 2020. Momentum has been fueled in part by investors seeking to align themselves with a variety of disruptive commerce trends that the pandemic has helped to accelerate. Three guiding themes in particular were at the forefront of many investment theses:

  • Rapid growth of digital commerce. With global online payment volumes expected to grow 23% Y/Y in 2020 according to our payments scenario analysis, investors have been attracted to startups well positioned to facilitate the offline-to-online volume shift.

  • Proliferation of emerging payment methods. The rapid growth of digital commerce has further laid the groundwork for vendors seeking to bring new consumer payment experiences, like installments and bank transfers, into the marketplace. Vendors that offer these methods directly, or provide access to them, are increasingly in demand.

  • Development of next-generation payments infrastructure. Aging payments infrastructure is getting increasingly exposed by the increase in digital commerce transaction volume. Vendors with modern technologies and architectures to enable efficient transactions are positioned attractively for growth.

  • Klarna captured the largest payments investment of the year, a $650m round at a $10.65bn valuation, ahead of an imminent IPO. That's in addition to a $200m round in January. Investors like the fact that the Swedish installment payment provider is seeing compelling growth in the US, with 11 million customers (up 106% Y/Y) and roughly 5,500 merchants in the US as of November.

    Investors also handed over large rounds to other payments IPO candidates. Affirm raised $500m just prior to filing its S-1 in November, while Marqeta, which has plans to go public in 2021, captured $150m from a US institutional investor. Also securing $150m ahead of a possible IPO in the US in 2021 was Brazilian payments processor Conductor Tecnologia SA. Toast, once thought to be nearing an IPO, notably raised $400m just prior to laying off half of its staff – affecting an estimated 1,300 employees – as the pandemic ravaged its POS software and payment facilitation business in April.

    Stripe's $600m series G Extension in April brought its total funding to about $1.7bn. The company has been rumored to be raising another round at a valuation in the $70-100bn range. While Stripe continues to suggest an IPO is not coming in the near term, it has made some major (and perhaps indicative) executive hires this year, including a CMO in January (former New Relic CMO & SVP of growth) and a CFO (former General Motors CFO) and CRO (former AWS VP of commercial sales & business development) in August.

    We noted continued strong interest in Europe's payments service provider (PSP) scene. Aside from European fintech darling Klarna, investors awarded the UK's checkout.com with a $150m series B roughly a year after its $230m series A. Checkout.com is quickly emerging as an Adyen challenger. While Europe remains its largest market by far, the company has its sights set on global growth and is scaling up in international markets. Mollie, on the other hand, remains a European-centric PSP. The company, which became a unicorn with its $106m series B, says it's on track to process over €10bn in transaction volume this year, representing 100% Y/Y growth.

    Outside of Europe, Indian PSP Razorpay become a unicorn with a $100m series D, while Voyager Innovation secured $120m for its PayMaya online payments system in the Philippines. Two prominent South Korean mobile payment app providers, Viva Republica (Toss) and Kakao Pay Corp (KakaoPay), collectively brought in more than $300m in funding ($173m and $132m, respectively). The later is targeting an IPO in the first half of 2021.

    Cross-border payments saw continued investor activity this year. LATAM-based cross-border pay-in/pay-out payments platform dLocal raked in $200m, becoming Uruguay's first unicorn. Australia's Airwallex added a $160m series D while Boston-based Flywire hauled in a $120m series E.

    On the merchant fraud prevention front, both Vesta and Forter raised $125m rounds, respectively. The former leads with a zero-chargeback liability proposition while the later targets enterprise-scale merchants and PSPs with an end-to-end fraud prevention proposition. Fraud prevention vendors have largely experienced tailwinds this year given the growth of digital commerce.

    Table 1: Select Nine-Figure Payment Vendor Funding Rounds in 2020 Table 1: Select Nine-Figure Payment Vendor Funding Rounds in 2020

    Vendor

    Round size

    Round type

    Valuation

    Date announced

    Description

    Klarna

    $650m

    -

    $10.65bn

    September 2020

    Installment financing

    Stripe

    $600m

    Series G extension

    $36bn

    April 2020

    Payment processing

    Affirm

    $500m

    Series G

    $5bn+

    September 2020

    Installment financing

    Toast

    $400m

    Series F

    $4.9bn

    February 2020

    POS Software / Payment Processing

    dLocal

    $200m

    -

    $1.2bn

    September 2020

    Cross-border payments

    Klarna

    $200m

    -

    -

    January 2020

    Installment financing

    Viva Republica (Toss)

    $173m

    -

    -

    August 2020

    Mobile payment app

    Airwallex

    $160m

    Series D

    $1bn+

    April 2020

    Cross-border payments

    Marqeta

    $150m

    Series E extension

    $4.3bn

    May 2020

    Issuer processing

    Conductor Tecnologia SA  

    $150m

    -

    -

    October 2020

    Payment processing

    Checkout.com

    $150m

    Series B

    $5.5bn

    June 2020

    Payment processing

    Kakao Pay Corp (KakaoPay)

    $132m

    -

    -

    June 2020

    Mobile payment app

    Vesta Corporation

    $125m

    -

    -

    May 2020

    Fraud prevention

    Forter

    $125m

    Series E

    $1.3bn

    November 2020

    Fraud prevention

    Flywire

    $120m

    Series E

    $1bn+

    February 2020

    Cross-border payments

    Voyager Innovations (PayMaya)

    $120m

    -

    -

    April 2020

    Online payments system

    Mollie

    $106m (€90m)

    Series B

    $1bn+

    September 2020

    Payment processing

    Razorpay

    $100m

    Series D

    $1bn

    October 2020

    Payment processing

    451 Research, 2020

    Under-the-radar payments vendors with disruptive potential


    While the current payments unicorns are well known, the next wave are waiting in the wings. Dozens of emerging payments vendors saw early-stage and initial venture funding in 2020. A handful that caught our attention are highlighted in Table 2. These seven vendors align broadly with the theme of rapid digital commerce growth and more specifically with the themes of emerging payment methods and next-generation payments infrastructure.

    Startups touting modern processing infrastructure are worth following closely. We continue to be optimistic about the prospects for payments orchestration vendors like Primer, given the market need for payment optimization and the precedent for M&A activity in this sector. Silverflow, founded by Adyen alums, is taking an interesting path by providing direct acquiring infrastructure for PSPs that want to connect directly to Visa and Mastercard. On the issuer processor side of the payments business, Privacy.com has emerged with a focus further downmarket than Marqeta, which could be a unique niche to fill.

    We also noted several investments pertaining to acceptance trends accelerated by the pandemic. The UK's Phos is looking to ride the contactless payment momentum created by COVID-19 with a software POS offering that enables tap-to-pay acceptance directly from an Android device. Pomelo Pay, also hailing from the UK, has introduced a pay-by-link system that enables merchants to accept payments by serving up a payment link to their customers.

    Following the high-profile acquisitions of Plaid and Finicty by Visa and Mastercard, respectively, startups with bank transfer capabilities could be positioned attractively. Sila provides an API for KYC, bank account linking and money transfer. Its co-founder and CEO also co-founded Simple, which sold to BBVA for $117m. AppBrilliance is taking on a somewhat loftier goal of creating an open banking payment network in the US.

    Table 2: Select Emerging Payment Vendor Funding Rounds in 2020 Table 2: Select Emerging Payment Vendor Funding Rounds in 2020

    Vendor

    Round size

    Round type

    Date announced

    Description

    Primer

    $18.6m (£14m)

    Series A

    November 2020

    Payment orchestration

    Privacy.com

    $10.2m

    Series A

    July 2020

    Issuer processing

    Sila

    $7.7m

    Seed

    April 2020

    Bank transfer system

    Silverflow

    $3m (€2.6m)

    Seed

    October 2020

    Payment processing infrastructure

    Pomelo Pay

    $2.8m (£2.1m)

    Seed

    December 2020

    Pay-by-link system

    AppBrilliance

    $3m

    Seed

    November 2020

    Bank transfer system

    Phos

    $1.4m (€1.3m)

    Seed

    April 2020

    Software POS

    451 Research, 2020