Key takeaways
On January 8, 2014, CB Insights, a New York –based research and analytics firm
published a report on 2013 venture capital activity in the payments technology space.
According to the report:
•
Payment tech companies raised $1.2 billion across 193 venture capital deals in
2013, up about 5% on-‐year and at the highest level in five years;
•
Deal activity growth was heavily concentrated at the early stage, with seed /
series A financing accounting for over 70% of all deals;
•
Over half of all deals were outside of major U.S. venture hubs and the space
attracted a variety of active investors which include pure-‐play VC outfits,
corporate venture units of financial services firms (American Express Ventures,
Citi Ventures) and cash-‐rich tech companies (Google Ventures, Intel Capital).
Notable recent developments
•
PulseWallet, an electronic transaction POS equipment provider, introduced its
card less POS kit that enables consumers leave their credit and debit cards at
home and pay for goods and services with a wave of their palms.
•
Singapore's DBS Bank entered into a partnership with IBM to deploy the latter's
Watson cognitive computing – a cloud-‐based artificial intelligence platform that
excels at analyzing the meaning and context of human language – to its wealth
management business.
•
At a time when most other governments around the world are issuing warnings
about the perils of using Bitcoin and framing rules to curb the use of the virtual
currency, Singapore has taken a more practical approach to the virtual currency
by issuing clear guidelines to users on how to handle taxation issues arising from
Bitcoin transactions. The move is significant because it lends Bitcoin / Bitcoin-‐
related businesses the first official recognition of their legitimacy.
Payment Tech Companies Raise
d
$1.2 Billion in
VC Deals in 2013
On Jan. 8, 2014, CB Insights, a New York-‐based research and analytics firm, published a report on 2013 venture capital activity in the payments technology space. According to the report, which covers five payments technologies markets – Mobile and Online Payments, PoS Solutions, Money Transfer, Services for the Underbanked and Transaction Processing – payment tech companies raised $1.2 billion across 193 venture capital deals in 2013, up about 5% on-‐year and at the highest level in five years.
Exhibit 1: Payments Financing Activity
The report notes that deal activity growth was heavily concentrated at the early stage, with seed / series A financing accounting for over 70% of all deals, although average deal size remained small ($1.3 million for Seed and $6.3 million for Series A funding. By comparison average deal size for mid-‐stage funding exceeded $20 million). Overall, payments tech deal activity trended upward, with each of the past four quarters seeing over 60 deals. Among the largest U.S.-‐based payments deals in 2013 were $50 million rounds to retail point of sales EMN8 and Zuora, an online subscription billing and payments startup, backed by investors including Benchmark Capital and Greylock Partners.
Exhibit 2: Deal activity heavily concentrated at early-‐stage funding
Boosting funding growth last year were major cash injections into international companies including deals such as the $75 million investment into UK mobile payments startup Powa Technologies. As shown below, over half of all deals in the past two years were outside of major U.S. venture hubs. Silicon Valley firms took 17% of deals, while New York saw 9% and strong year-‐over-‐year deal growth in the payments space.
Exhibit 3: Over half of all deals outside of major U.S. venture hubs
The Top Investors
The report further highlights the "diversity" of active investors in the payments space with key players coming from pure-‐play venture capital outfits to corporate venture units of financial services firms (American Express Ventures, Citi Ventures) to cash-‐rich technology companies (Google Ventures, Intel Capital). It is clear that a variety of companies see massive opportunity in the payments space. The most active investors in payments over the past two years have been Accel Partners, which counts Braintree, Gumroad and GoCardless in its portfolio and Andreessen Horowitz, which has invested in firms including Dwolla, Boku and Jumio.
In addition, the report notes, financial services companies such as American Express, Citi and MasterCard have all been active as well, investing in Square and iZettle. Interestingly, American Express has invested in
competitors in the space – iZettle and SumUp. Both of these firms compete with Rocket Internet backed Payleven and of course Square. Interestingly, the most active corporate investor in the payments space was not in financial services but Intel Capital, which has done a handful of deals since the start of 2012.
Exit Trends
The report also notes a 16% year-‐over-‐year drop in M&A and IPO activity in the payments space, highlights key 2013 exits (PayPal’s $800M acquisition of Braintree and FIS’s buyout of Ignition Partners-‐backed mFoundry) and points to potential exit activity resurgence in 2014, mainly owing to the anticipated IPO of Square.
Exhibit 4: Exit activity slowed in 2013
Recent Developments
NEW PRODUCTS / SERVICES
PulseWallet Introduces Biometric POS Solution Based on Fujitsu's PalmSecure Technology
On Jan. 7, 2014, PulseWallet, an electronic transaction POS equipment provider, demonstrated its card less POS kit integrated with Fujitsu's PalmSecure biometric technology at the CES International Las Vegas Convention. According to the company, the solution allows consumers leave their credit and debit cards at home and pay for goods and services with a wave of their palms. The Fujitsu PalmSecure biometric sensors use a near -‐infrared light to capture, within seconds, a user's palm vein pattern generating a unique biometric template that is matched against the encrypted patterns of pre-‐registered users for authorizing payments.
PayPal Set to Launch Small Business Loan Program Globally
On Jan. 9, 2014, according to media reports, PayPal is planning to launch its small business loan program, called Working Capital, outside the U.S. The program, which has been on trial and offered select US-‐based merchants to take out a loan of up to 8% of their yearly revenue processed through PayPal, up to a maximum of $20,000. Under the program, selected merchants who avail the loan pay back borrowed principal with deductions ranging between 10% and 30% of their daily receipts. While there is no explicit interest on money borrowed under the program, PayPal charges merchants a flat fee, depending on the amount of the daily deduction, that works out to annualized interest rates of anywhere between 6.7% -‐ 23.9% (based on our calculations). According to Darrell Esch, VP of small business lending at PayPal, the company now plans to introduce 'Working Capital' globally, and perhaps double the loan limit to $40,000.
Ross Mortgage Offers New Mobile Mortgage App
On Jan. 9, 2014, Ross Mortgage Co., a Michigan –based mortgage banking firm, announced the launch of a new mobile mortgage-‐banking app that, according to the company, offers solutions to many of the systemic problems surrounding the loan approval process. The mobile app, which the company developed in
collaboration with Easy Mortgage Apps LLC (EMALLC), allows customers the ability to point, capture and securely share time sensitive documents for underwriting, approval or closing. As a result, customers can get real-‐time loan status updates, communicate with relevant entities, share data and remain engaged.
NCR Corporation (NYSE: NCR +4.5%) Launches an Ecosystem of Digital Solutions for Retail
On Jan. 8, 2014, NCR Corp. announced the launch of NCR Cloud Connect, a cloud-‐based ecosystem of digital services for retailers to help them incorporate digital and online payment solutions over their NCR point-‐of-‐ sale (POS) or loyalty and marketing solutions. According to the company, by using an advanced integration layer, retailers can easily link their consumer-‐facing touch points to NCR Cloud Connect and seamlessly introduce services such as mobile payments, digital coupons, big data analytics and augmented reality shopping from leading technology providers such as PayPal, Inmar, Cimagine, Emicen and ACTV8.
Bluefin Payment Systems Introduces QuickSwipe Mobile POS System
On Jan. 8, 2014, Bluefin Payment Systems, a financial technology provider of cloud-‐based integrated payment solutions, introduced a mobile point of sale (mPOS) system QuickSwipe targeting ISVs, SaaS providers, and merchants seeking an mPOS system with rich features and a high level of data security. The system supports credit/debit, ACH and cash journaling, allows merchants to build catalogs of items and inventory, assign administrators and users, enable tips and taxes, issue refunds, provide GPS-‐driven receipts and, for data security, utilizes tokenization and the ID Tech Shuttle, a technology that encrypts data transfer between the mobile device and the QuickSwipe platform.
PARTNERSHIPS
SouthAfrica's Nedbank (JSE: NED -‐1.0%) Targets New Customers via Social Media Using IBM Technology
On Jan. 10, 2014, Technology Banker, an Africa-‐based publication, reported that Nedbank is using social media analytics to win customers from rival banks by monitoring their chatter on Twitter and Facebook. The bank, in partnership with IBM and a local supplier Olrac SPS Solutions, developed a predictive modeling system that integrates social media analytics into the bank's systems, providing the bank's marketing team visual
dashboard of social chatter and enabling them to deliver more effective sales promotion messages. According to Eugene Liebenberg, head of Nedbank's retail business intelligence: "the bank has also been successful in setting up discussions with customers from rival banks and persuading them to move their accounts. Because we are tracking out competitors, we can target some of their customers and switch them across."
MoneyGram (NASDAQ: MGI -‐8.5%) Partners with Postal Savings Bank of China
On Jan. 10, 2014, MoneyGram, a global money transfer and payment services company, announced an agreement with Postal Savings Bank of China Co. Ltd (PSBC), a large commercial retail bank in China, to provide money transfer services in over 3,700 locations. With the addition of PSBC to MoneyGram's agent network, and the rollout of MoneyGram's money transfer services to mainland locations, MoneyGram services are now available at over 20,000 locations in China. The partnership is significant insofar as China was the second largest recipient of remittances – receiving an estimated $60 billion in money transfers from approximately 150 countries – according to a 2012 study conducted by the World Bank.
DBS (SGX: D05 +2.4%) Partners with IBM Watson to Crunch Big Data
On Jan. 9, 2014, DBS Bank and IBM announced an agreement in which DBS will deploy IBM’s Watson cognitive computing platform to its wealth management business in a bid to improve the advice and experience delivered to customers. Watson is a cloud-‐based technology that can process enormous amounts of information with the ability to understand and learn from each interaction at very high speed, enabling organizations to analyze, understand and respond to vast amounts of data. Notably, Watson excels at analyzing the meaning and context of human language – a feature that created quite a stir in 2011 when the Watson machine beat two human competitors to claim the $1 million prize on the US quiz show Jeopardy.
Ingenico and Starmount Partner to Offer Retailers a Joint Mobile Chip & PIN Solution
On Jan. 9, 2014, Ingenico, a leading global provider of payment solutions, announced a strategic partnership with Starmount, a provider of mobile software solutions that helps retailers engage with customers across channels by delivering a more personalized shopping experience. The move, according to Ingenico, combines the company's significant footprint in retail and EMV-‐ready payment products with Starmount's mobile software platform designed to free store associates from a cash register and to service and transact with customers in the aisle without leaving the customer.
REGULATORY
European Commission Extends SEPA Migration Deadline
On Jan. 9, 2014, the European Commission "proposed" to modify an EU Regulation related to the Single Euro Payments Area (SEPA) – a payment-‐integration initiative of the European Union for simplification of bank transfers denominated in euro – extending the SEPA migration deadline by six months to Aug. 1, 2014. The proposal comes in the wake of mounting evidence that market participants are struggling to meet the original Feb. 2014 target for switchover to the new euro payment formats. While, in its formal statement the EU monetary authority noted that the Feb. 1, 2014 migration end date remains intact, the proposal seems to suggest that the authority is prepared to provide businesses an extra grace period of six months to prepare their systems for accepting SEPA credit and debit transfers before blocking legacy payment instruments.
JP Morgan Chase & Co. (NYSE: JPM -‐0.3%) Plans to Exit Prepaid Cards Business
On Jan. 9, 2014, JPMorgan Chase Bank announced plans to potentially sell or exit, over time, its business of issuing prepaid cards for corporate payrolls and government tax refunds and benefits and noted that it will no longer solicit or accept any new prepaid card business. Although the bank did not comment on the reason for the move, the decision comes in the wake of a recent data breach that compromised personal information of 465,000 cardholders and increasing complaints from workers and advocacy groups about fees banks charge for using such cards. In addition, we believe the decision to exit the business may have been influenced by a Sep. 2013 bulletin issued by the U.S. Consumer Financial Protection Bureau (CFPB) that suggested that banks might be expected to make sure corporate clients were following rules when paying employees with cards.
American Express (NYSE: AXP -‐1.1%) Joins Retailers to Appeal $5.7 Billion Anti-‐Trust Settlement
On Jan. 8, 2014, American Express said it is joining retailers in appealing a federal judge’s order approving Visa Inc. (NYSE: V) and MasterCard Inc. (NYSE: MA) settlement that appeared to have ended years of litigation with U.S. merchants over allegations that credit-‐card swipe fees are improperly fixed. The Dec.13 settlement called for a $5.7 billion payment by MasterCard and Visa to retailers and allowed retailers to offset the costs of swipe fees by adding a surcharge to credit card purchases. Although retailers filed the appeal on concerns that the settlement would do nothing to curb rising swipe fees, American Express' appeal apparently stems from its apprehension of market share losses as the company's comparatively higher swipe fees could encourage merchants to add a surcharge, under the terms of the settlement, on AMEX card transactions.
VIRTUAL CURRENCIES
Alibaba's Taobao Marketplace Bans Bitcoin
On Jan. 8, 2014, Bloomberg news reported that Alibaba Group Holding Ltd., China's largest e-‐commerce website, would ban the sale of Bitcoin and other virtual currencies after the country’s central bank tightened regulations in December. Taobao Marketplace, one of the main Alibaba platforms for consumer-‐to-‐consumer retail transactions, will bar the sale of Bitcoin and related products, including mining software and hardware for the virtual currency. A number of other third-‐party payment systems have also stopped processing transactions for Bitcoin purchases. Payment provider YeePay gave notice last month to BTC China, the largest Bitcoin exchange in the country, that it could no longer provide payment services. TenPay, a payment provider owned by Tencent Holdings Limited, also halted service with the exchange.
Singapore Lays Down Tax Rules for Bitcoin Businesses
On Jan. 8, 2014, Coin Republic, a Singapore-‐based Bitcoin brokering service, reported that The Inland Revenue Authority of Singapore (IRAS) gave guidance for how to handle capital gains, earnings, and even GST (sales tax) on Bitcoin exchanges and Bitcoin related sales. The move is significant because it lends Bitcoin / Bitcoin-‐ related businesses official recognition of their legitimacy from Singapore government at a time when most other governments around the world are issuing warnings about the perils of using Bitcoin and framing rules to curb the growing popularity of the virtual currency.
