U.S. Payments Venture Capital Investment Five Year Recap

Navigator Edition: August / September 2017
By: Peter Lischick

Accenture tracked over 140 Venture Capital (VC) investments in U.S. payments start-ups that totaled more than $2.3 billion in equity during 2016. Since 2012, the investment growth rate into U.S. payments entrants has exceeded the investment growth rate of the overall U.S. VC market. In addition to the rate of growth of investment, payments startups are raising more money per investment. In 2012, the average VC investment into a payments entrant was ~$11 million while in 2016 it was ~$17 million. This could be a signal of increased maturity within payment startups (data does suggest a higher proportion of investments being series C or later), but may also signal the increased need for working capital in payment startups or even increased valuations.

While the five-year horizon for payments start-ups is impressive, we note that 2016 actually yielded a 16% decline in payments funding. While it is our current assertion that this decline is more a function of normalization (smoothing of the investment curve) off of a record high in 2015 versus the beginning of a negative trend, we will be watching closely to see how investment shapes up.

See Figure 1 for more information about VC investment in the U.S. payments industry relative to total VC investment in the U.S.

Figure 1: U.S. Payments VC Investment Relative to Total U.S. VC Investment
(Estimates are in $MM)

Notes: To be classified as a payments investment, the company being considered for inclusion was required to operate in one or more of the following fields: payments processing, point-of-sale payments systems, payments security / fraud prevention, stored value solutions, payments data analytics, money transfers, purchase financing, crypto-currencies, payments acceptance, and other closely related payment fields. The payments total estimates do not include investments in firms that provide loyalty / rewards services. The payments totals also do not include majority-stake private equity investments, crowdfunding investments, or investments under $1 million. Payments investments capture publicly announced investments made by venture capital firms, corporations, corporate venture divisions, hedge funds/mutual funds, angels, incubators, and accelerators. Neither debt, grants, convertible notes, nor lines of credit were included as payments investments in these estimates. Total U.S. VC Investment totals include all VC equity investments in the U.S. including those below $1 million.
Source: Payments VC totals are from company press releases and Accenture research. U.S. VC investment totals are from PitchBook-NVCA Venture Monitor1.

Looking forward, we anticipate several trends that impacted early-stage payments investments will continue, including:

  1. Greater interest in payments start-ups from strategic investors: Data suggests ~28% of payments start-ups have at least one strategic investor, up from ~17% in 2012 – and those start-ups that received strategic investment represented a greater proportion of investment in 2016 than they did in 2012.
  2. An evolving regulatory landscape: Uncertainty continues to surround the U.S. regulatory environment for financial services, though the election of a Republican President has led some to speculate that we may see some slight shift towards de-regulation over time.
  3. Possible proliferation of Special-Purpose National Bank (SPNB) charters: In March of 2017, the Office of the Comptroller of the Currency (OCC) issued a draft licensing manual providing detail on how it will evaluate SPNB fintech applications: clearing the way to allow fintech’s to start receiving banking charters.

1 PitchBook News & Analysis, “2Q 2017 PitchBook-NVCA Venture Monitor,” July 10, 2017. http://nvca.org/research/venture-monitor/.

For more information please contact Peter Lischick, Consultant, peter.lischick@accenture.com, specializing in Credit Card Issuing.

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