Payments M&A in 2023

As we are approaching the end of another year, EDC, like many others, want to take a look back at the payments and fintech industry and how M&A activity really panned out. You will find a lot of news items on reduced funding for the industry, the non-deployment of funds, the cutting of company valuations (most justified, some maybe less so) and there is a general feeling that 2023 was not the vintage year that we have seen in previous years. In fact, only in October, Paymentsdive reported on CB Insights research stating that “Funding for payments start-ups worldwide dropped 39% in the third quarter, compared to the second quarter, amounting to just $1.1 billion. The number of funding rounds tanked 52%, compared to the second quarter, to just 73.” Another sign of nervousness in the market is that company valuations of some of the ‘big guys’ (Adyen, Stripe, or Klarna) have arguably been as dynamic (or should we say volatile) as they have been for years.

In other words, the industry seems to be experiencing some challenging times. Judging from the amount of M&A projects EDC has been involved in this year, such negativity cannot fully be validated. And where is the problem if more focus was to be placed on achieving profitability and serving profitable customers rather than grabbing market share and attracting investment with customer numbers only?

In order not to rely on external data sources only, earlier this year, EDC started tracking M&A activity and investments in the payment space creating our own database. So what does this data actually tell us?

Since the start of the year, we recorded almost 100 acquisitions in the payments and fintech industry. Unfortunately, we are not in a position to place a total acquisition value on these deals as financial terms frequently remain undisclosed. But here are just some examples of deals above $500m: Swedish SEB acquiring German AirPlus, Visa buying Brazilian payment technology provider Pismo, private-equity firm GTCR acquiring a 55% stake in Worldpay, Equifax acquiring Brazilian credit services bureau Boa Vista Servicos, Rapyd buying parts of PayU’s payments business or Omnicom acquiring digital payments provider Flywheel Digital. Maybe the absolute number of deals is below 2022 but quality deals are being done; from both strategic and financial buyers.

On the funding side, we continue to see the expected curve of a higher frequency of deals for Series A and a gradual reduction of deals as funding rounds mature. The two largest Series D / E funding rounds were Mizuho Bank’s $270m raise for Kredivo in SE Asia and Wellington Management’s $200m investment in Saudi-based Tabby. Both of these deals interestingly involve providers of Buy-Now-Pay-Later solutions. Most of the earlier funding rounds are of much smaller value and very frequently combined with the provision of a credit / debt facility.

Taking a look at some of the specific segments of the payment industry, where deals are being finalised, can also be of interest. Fintech was the ‘busiest’ segment with 172 deals but this might well be related to fintech being a fairly generic term covering a wide range of different aspects. Within that segment, we saw deals in the BaaS / Embedded Payments space, Crypto and Open Banking but also covering very specific propositions around Personal Financial Management for example.

Other than Fintech, there are four other sub-segments in which we saw more than 50 deals in 2023: B2B, Banking, Digital Payments and Payment Technology.

• B2B covered everything from receipt automation, payroll solutions, underwriting, SME lending / working capital solutions to automation of corporate spend
• Banking saw deals on banking platforms / BaaS, PFM or P2P solutions
• Digital Payments is more about BNPL, marketplaces, PSPs, digital wallets or payment orchestration
• Payment Technology covers fraud prevention, cybersecurity or wider payment platforms

Note: We do understand that it can be difficult to classify one company into one of these segments especially if there are different facets to a company proposition but we tried to be as consistent as possible

Finally, let’s take a very brief look at some specific findings:

1. The role of Artificial Intelligence (AI) in payments is hotly debated. Everybody seems to suggest that AI is the next big thing and we at EDC have been discussing this extensively. Looking at AI-related deals is of interest and might reveal where investors would see the benefit of AI applications in the payments and fintech world. It seems to be all about automating or speeding up decision-making processes. Whether this relates to Document Processing (Traydstream), Credit Decisioning (Martini.ai), fraud or risk management (Deduce or Blackbird.ai) or Data Analytics (Spott or Hazy). We have seen a few dozen deals in 2023, typically at Series A or B stages, all supporting this investment rationale.
2. The combination of equity and debt facilities in deals is another interesting aspect we noted. 8Fig, mKopa, Kiwi, LendInvest or Silvr are just a few examples that closed deals that combined an equity investment (no repayment obligation but extra working capital for sell of ownership) and the provision of a debt facility (which will include some agreed form of repayment).
3. Tencent is a Chinese technology and entertainment company that, amongst us payment nerds, is best known for its ownership of WeChat and WeChat Pay. Tencent has made three strategic investments over the last six months that might not have gained as much publicity as we would have expected. Investments in South African TymeBank, Singapore-based Primer and Swiss-based Global Blue all point to the ‘acquisition’ of capabilities and product solutions in lending, online payment processing and value-added services like tax refunds that can be leveraged in its own ecosystem.

So where do we go from here? Lots of our industry contacts suggest that funds are waiting to be deployed and that 2024 will be a big year for payments and fintech investors. Looks like EDC will have its work cut out in maintaining and updating our M&A database.

The content of this article does not reflect the official opinion of Edgar, Dunn & Company. The information and views expressed in this publication belong solely to the author(s).