Guest blogger Peter Lischick discusses analysis of over 140 Venture Capital (VC) investments in US payments start-ups and the look ahead.
Accenture tracked over 140 Venture Capital (VC) investments in US payments start-ups that totaled more than $2.3 billion in equity during 2016. Since 2012, the investment growth rate into US payments entrants has exceeded the investment growth rate of the overall US 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 percent 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 US payments industry relative to total VC investment in the US.
Figure 1: US Payments VC Investment Relative to Total US VC Investment
(Estimates are in $MM)
Looking forward, we anticipate several trends that impacted early-stage payments investments will continue, including:
- Greater interest in payments start-ups from strategic investors: Data suggests ~28 percent of payments start-ups have at least one strategic investor, up from ~17 percent in 2012 – and those start-ups that received strategic investment represented a greater proportion of investment in 2016 than they did in 2012.
- An evolving regulatory landscape: Uncertainty continues to surround the US 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.
- 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/
Peter Lischick, Management Consultant