Payments space no less active despite lack of mega-mergers

2019 saw several mega-mergers in the payments space, including the US$42.5 billion acquisition of WorldPay by FIS and the US$22 billion acquisition of First Data by Fiserv. With no mega-mergers as of yet in 2020, investment in the payments pace looks soft, however, associated global deals activity remained very strong in H1’20. 

H1’20 VC deals focus on mature payments providers

In H1’20, investors in the payments space focused on late-stage companies, a trend that reflected investment patterns more broadly given the uncertainty related to COVID-19. During the first 6 months of the year, Stripe raised US$850 million, Chime raised US$700 million and Revolut raised US$500 million. 

Bar graph - Total global investment activity in payments

We will likely see more bundling of the capabilities that are necessary to deliver a seamless experience for digital transactions at the point of sale, online and through mobile. We may also see more startups focusing on vertical industries, whether it's healthcare, real estate or others to provide a highly digital and frictionless customer experience. And there will likely be larger scale acquisitions in the play as well, as we begin to look beyond domestic payments and begin thinking about cross-border.

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

M&A could see surge in H2’20 as COVID-19 takes toll

M&A activity could see a surge in H2’20 as investors or companies that have built up their cash reserves look for bargains. The extended impact associated with the pandemic could cause early-stage and less liquid payments startups major challenges, creating opportunities for their better-capitalized counterparts. More mega-mergers are also possible as large companies look to build out their capabilities, create scale and become more price competitive.

Corporates adapting to change

The payments space is one area where leading corporates are not resting on their laurels. Mastercard and Visa are both active dealmakers, both from an acquisition standpoint and from a partnering perspective. Neither appears to expect money movement to continue along traditional rails. They are working to enhance the capabilities of their legacy infrastructure to emulate a more real-time money movement and to provide more capabilities, particularly in the B2B space. For example, in H2’20, Visa announced its acquisition of API-focused Plaid for US$5.3 billion1, while Mastercard announced its acquisition of open banking focused company Finicity for US$825 million2.

Niche payments companies still attracting funding

While large players continued to attract the lion’s share of funding in the payments space, there continued to be room for nimble organizations looking to take friction out of the payments process to attract funding. This was particularly true for companies targeting niche verticals, such as healthcare payments or cross border payments.

Trends to watch for in H2’20

Heading into H2’20, the payments space will likely see more bundling of capabilities in order to deliver a more seamless customer experience for digital transactions. There will likely also be an increase in startups focusing on niche verticals, such as healthcare and real estate, and on solutions targeting the cross-border payments space.