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