Are Online Payments The Hottest Area To Invest In Right Now?


Let’s consider this; financial services has been the backbone of some of the most advanced economies in the world over the last 30 years, including the US and the UK. So much so you can easily make the case there’s been an over reliance on the industry. The other new (admittedly rather broad) industry growing at the most significant rate and which is home to the largest companies in the world right now is of course tech. So with that in mind there’s no surprise FinTech is one of the hottest areas to invest in right now. And within the FinTech industry no service is being disrupted as much as online payments. Other Financial Services are being disrupted too – online lending solutions for businesses and online mortgages for individuals are just a couple of examples, but none are quite reaching the growth levels and valuations of online payment firms.

 

The last 10 years have seen a mixture of venture capital and private equity investors in the online payments industry. As well as the relatively new companies to hit the scene such as TransferWise and Revolut which received Venture Capital on launch there a number of established players receiving private equity investment to further boost the growth they’ve already enjoyed, including companies such as Moneycorp, Global Reach and Currencies Direct. In fact out of the 10 largest online payment firms it’s difficult to find one that hasn’t received PE investment. WorldFirst has been the only firm to see a Private Equity exit in the last couple of years but this was due to an acquisition from the Chinese e-commerce giant Alipay/Alibaba.

 

So let’s take a look at the first two companies mentioned in this article, TransferWise and Revolut.

 

TransferWise

 

Launched in 2011, the UK based Transferwise money transfer service took the market by storm. Revolutionising how FX spreads were presented to customers and making it their mission to move money without borders. Built by and for people who live global lives they aim to provide the fairest, easiest way to manage money across borders.

 

Upon its initial seed investment of $1.3m from firms such as Index Ventures and IA Ventures there was further venture investment shortly after from Valar Ventures and individual investors Richard Branson and PayPal founder Max Levchin. Back then the firm was valued at maybe tens or hundreds of millions of dollars. Fast forward to 2015, TransferWise reached unicorn status when its series C funding round of $58,000,000 valued the company at $1bn. Its most recent series E funding round in 2019, raising $280,000,000 took total investment to $689,000,000. Valuing the company at $3.5 billion. Far eclipsing the valuation of the UK digital lender OakNorth (valued at $2.8 billion).

 

Underneath the investment there are impressive numbers too – over 6,000,000 customers moving over $5 billion a month. TransferWise, after years of pure focus on customer acquisition, first turned profit in 2018 and with the sheer scale of customers we expect the same when it 2019 financial statements are released.

 

Revolut

 

Revolut was founded in 2015 and has enjoyed perhaps the most remarkable growth of all. Like TransferWise, it too now has over 6,000,000 customers except it’s acquired these in half of the time. The Revolut platform aims to convert currencies at the interbank rate whilst allowing users to spend money around the world, linked to a digital bank account.

 

Revolut’s initial crowdfunding campaign saw them raise £1.01m via crowdcube (at that point valuing the firm at £42m). By 2017, the firm was valued at £1.2b and crowd investors had the option to sell their shares for 19x the initial investment. Looking at Revolut today and its newest funding round which is set to be led by Investor Technology Crossover Ventures is reported to value the firm at $5 billion. Subject to FX conversion, valuing the crowdfunded shares at roughly 80x their initial value.

 

What International Payment Firms Are Receiving Investment?

 

In addition to TransferWise and Revolut growing at frankly staggering rates there are still substantial growth rates being achieved by most of the other leading online payment firms. We can look specifically at the international payment firms too:

 

  • The Global Reach Group that was acquired by Inflexion was trading £3 billion a year at the time of buyout in 2016 and is now trading £6 billion a year.

 

  • Ant Financial acquired WorldFirst in 2019, valuing the firm at $712 million, having been founded in a basement in 2004.

 

  • Currencies Direct which received PE from three different firms in 2015 had 150,000 customers at the time. In 2019, Currencies Direct is reported to have helped 325,000 customers, trading £7.5 billion annually.

 

The Most Valuable FinTech Startup

 

And of course we have to mention the most valued FinTech (and online payment) start up of all – Stripe. The San Francisco based payments company raised an additional $250 million in equity from Sequoia, Andreessen Horowitz and other venture investors in September 2019 – valuing the firm at a mammoth $35 billion. Meaning the firm is valued even higher than Airbnb, one of the very companies Stripe provides a payment solution for. Allowing Airbnb to collect funds from customers all over the world.

 

Let’s take a look at Stripe’s valuation since it first launched in 2009 over a few of its key funding rounds. Note that there are more funding rounds but we haven’t referenced them all, in fact 2019 was its series G funding round.

 

Year Investment Round (Raised) Valuation
2011 $2m N/A
2012 $18m $100,
2016 $150m $9b
2018 $100m $22.5b
2019 $250m $35b

 

As retail and SME customers continue to shift away from banks due to the superior service and pricing offered by the specialists it can only further support the case that online payments is just about the hottest area to invest in right now.

 

Are money transfer companies focused only on the British market?

In fact, the British money transfer market has taken a bit of a beating as a result of the Brexit referendum in conjunction with the decrease in the Sterling value (both are interconnected, of course). There are simply less people moving large sums of money from the UK to buy property in Europe because with the GBPEUR at under 1.20, it may be more reasonable to purchase domestically than go through complex processes and invest overseas. The lack of confidence about things to come, have even pushed this trend further.

 

Hence, money transfer companies are not fixated on an all-UK strategy as they used to have. In fact, some locations like Australia or Singapore are showing a lot more promise than the UK for years to come. These two particular locations are very sought after by money transfer providers, and they start producing their own domestically headquartered competitors. In Australia, you have companies like OFX, SendFX, and Transfermate which are boasting very significant trading volumes each year. In additional, the large money transfer companies have offices in Australia In Singapore, you have newfound companies like AirWallet (focusing exclusively on business money transfers) hitting a valuation of $1bn.