Cashing in: Payments firms rush to go public

July 26, 2021 11:12 AM

Technology companies that power digital payments are hoofing it to the public markets, seeking financial backing for their ventures in embedded finance, cryptocurrency, alternative point-of-sale credit and other hot trends.

The digital payment processor Stripe is exploring whether to pursue an initial public offering in the near future, according to Reuters. The Crypto exchange Circle announced a merger with a special-purpose acquisition company in June with the aim of going public later this year. Wise listed in London just a few days prior, and Payoneer listed on Nasdaq in late June following an earlier merger agreement with FTAC Olympus Acquisition Corp.

That activity is part of a busy year for the IPO market in general. Through June 30, U.S. IPOs totaled $171 billion across all sectors, surpassing the midyear record of $168 billion set in 2020, according to Dealogic. Until then, the reigning midyear record of $107 billion went all the way back to 1999, during the height of the dot-com boom, according to Bitfinix.

Payment technology companies have an existing base of enrolled users and control over credentials and transaction data, all of which appeal to investors and special-purpose acquisition corporations. "Payment tech companies are transaction-based businesses with predictable recurring revenue streams," said Richard Crone, a payments consultant.

Here are nine payment firms that have either gone public in the past few weeks or are working toward a public listing.

Stripe

Bloomberg

Stripe's $95 billion valuation

makes it one of the world's most highly valued privately held technology firms. It has enjoyed a series of investment rounds over the past several years, the most recent having taken place in March.

The San Francisco company has hired Cleary Gottlieb Steen & Hamilton for legal advice ahead of potentially hiring investment bankers for an IPO, according to the Reuters report. Stripe's investors have included the venture-capital heavyweights Andreesen Horowitz, General Catalyst, GV and Sequoia.

Stripe, founded in 2010, provides connections for businesses to accept online payments, a model that has fueled its success with private-equity investors and allowed Stripe to invest in other technology companies. Stripe in the past year has invested in Check Technologies, which builds human resources systems; Fast, a startup that supports one-click payments; and Step, a teen banking platform. Stripe has made dozens of other investments over the years to build international security technology to comply with PSD2 and provide digital merchant services beyond payments processing for its base of small-business clients.

Stripe

raised $600 million

in the spring of 2020 to bring online payments capabilities to traditional brick-and-mortar firms that had to go digital during the pandemic. Stripe bundled several of its products — including fast access to funding to improve liquidity for small business — such as Stripe Capital, Stripe Corporate Card and other products.

Going public would enhance Stripe's ability to fund more acquisitions and strengthen incentives jfor employees, according to Reuters, which also reported that the after an IPO Stripe could rival Chinese technology companies Ant Group and ByteDance as the world's most valuable startup.

Stripe competes with established bank technology companies like Fiserv and FIS, and relatively newer payment technology companies like PayPal and Square. All of these companies are publicly traded.

Circle

Circle CEO Jeremy Allaire has pushed the USDC stablecoin, which has grown fast over the past year

World Economic Forum / Ciaran Mc

The

Boston-based cryptocurrency exchange

recently entered a deal with Concord Acquisition Corp. to go public on the New York Stock Exchange via a SPAC merger. The transaction gives Circle an enterprise value of $4.5 billion.

Circle is betting on the growth of stablecoins, which tie their value to government-issued currencies to avoid the volatility associated with cryptocurrency. Through the use of distributed ledgers, stablecoins can also speed processing and enable digital ID and cross-border payments.

Circle's USDC stablecoin is in the market ahead of Diem, the Facebook-affiliated stablecoin that's expected to launch this year. USDC has expanded fast, with Circle reporting its stablecoin has grown 3,400% since early 2021. More than $25 billion of USDC is in circulation, powering more than $785 billion in on-chain transactions.

That growth has fueled an expansion of financial services, such as Circle Account, application programming interfaces, Circle Yield, distributed finance APIs and SeedInvest, which helps firms raise capital directly from investors on the internet.

The product diversification will allow Circle to compete in the race to support embedded finance, or super apps.

Apple Card

, which is powered through a collaboration between Apple and Goldman Sachs, is the best known example of embedded finance, though dozens of other fintechs and payment companies are pursuing the strategy.

Afterpay

The Australian firm AfterPay, which is plotting a U.S. expansion, is part of the fast growing and competitive buy now/pay later market.

AfterPay

Part of the fast-growing buy now/pay later industry, Afterpay, has reportedly begun preparing to go public.

The six-year-old Melbourne-based Afterpay in April hired Goldman Sachs to advise on a potential IPO, according to

CNBC

, adding a U.S. listing would enhance Afterpay's profile in the U.S. where it's expanding due to growth in online shopping. BNPL has grown quickly, with Afterpay reporting reporting North American sales have tripled in the first three months of 2021.

BNPL firms are popular with investors, though the industry is under regulatory pressure and competitive pressure, which could potentially pressure BNPL firms that have to lower their fees to merchants. That pressure could

spur diversification

into other financial products such as savings accounts, incentive marketing or broader mobile payments to create stickier relationships with merchants. Public listings could provide more funding for acquisitions or development to broaden BNPL lenders' product lines.

"While we intend to remain an Australian headquartered company, our shareholder base is increasingly becoming more globally focused. A U.S. listing would further accommodate this growing interest," Amanda Pires, an Afterpay spokesperson, said in an email.

Swedish BNPL rival Klarna has also expressed an interest in going public, though it has not made firm plans and earlier in 2021 told

TechCrunch

it is in "no hurry" for a listing. Klarna did not return requests for comment.

Wise

Wise rebranded from TransferWise ahead of the digital payment company's listing.

Bloomberg News

The London payment company formerly known as TransferWise went public on July 7, raising $11 billion. That's above original expectations of about $7 billion, making Wise the largest-ever technology lPO in London.

Wise, which was founded in 2011 and specializes in cross-border payments, rebranded in

February

ahead of the listing to reflect the company's growth beyond remittances. Its products include a debit card tied to an account that offers consumers banking services in multiple countries; traditional banks normally offer such accounts to business clients only.

Cross-border payments have expanded as e-commerce has grown, requiring international payment options for smaller, more frequent transactions than the bulk payments that dominate supply chain payments for large businesses.

That has contributed to demand for payment options that don't require intermediaries such as correspondent banks, which add time and fees to manage currency conversions and compliance. Wise competes with firms such as Ripple, which has used the technology that underpins its XRP token to enable fast cross-border payments.

Payoneer

Payoneer's services include supply chain payments, a key task for merchants during the pandemic.

SOPA Images/Getty via Bloomberg News

Payoneer went public on Nasdaq on June 28 through a $3.3 billion SPAC merger with FTAC Olympus Acquisition Corp., valuing the New York-based company at about $3.3 billion.

The 16-year-old Payoneer offers e-commerce technology and has clients including Arbnb, Google, Walmart and Amazon.

Payoneer's payments orchestration platform is a hub for merchants to automate consumer and supply chain payments, as well as taxes, risk and merchant services, all vital tasks for businesses that have faced liquidity crunches during the pandemic. Payoneer processed about $44 billion in payments in 2020.

At the time of the FTAC Olympus deal in early 2021,

Scott Galit

, Payoneer's CEO, said the SPAC would allow the company to achieve the advantages of becoming a public company in a short time while accessing an experienced fintech team at FTAC Olympus.

Marqeta

Marqeta specializes in using APIs to support online payments, putting it in competition with Square.

David Paul Morris/Bloomberg

One of Stripe's rivals in the payments API market, Marqeta, debuted on Nasdaq in early June in an IPO that valued the company at about $14 billion.

Marqeta's strategy

is based on the idea that payments need to be seamless since payment support is now embedded in almost all software.

The 11-year-old Marqeta's client base includes delivery services, which grew during the pandemic and stand to expand as the pandemic eases and ride-sharing apps pick up steam. The Oakland, California-based payment company provides the nuts and bolts for companies like Uber, which has expanded deeper into financial services to broaden relationships with its gig-economy drivers and riders.

Marqeta also provides technology for Square, supporting its small-business debit card and Square Cash app, providing a boost for Marqeta's earnings ahead of its listing. Marqeta was one of the first companies to use application programming interfaces to support card issuance, and has added PSD2-influenced open banking technology and began issuing credit cards in recent years.

dLocal

dLocal COO Sumita Pandit says her company's listing will boost its recognition.

One of dLocal's newest leaders acknowledges the company had a relatively low profile, a challenge it hopes to overcome through its IPO, which priced on Nasdaq on June 2 at $21 per share, valuing the company at $13.4 billion.

"We weren't as well known before we went public," Sumita Pandit, chief operating officer of the Uruguay-based dLocal, said in an

earlier interview

. "Our listing will give us added relevance." Pandit joined dLocal in April following a stint as managing director and global head of fintech investment banking for JPMorgan Chase.

dLocal connects merchants to emerging markets in Latin America, Africa and elsewhere. It hopes to use the funding to hire more staff, with its status as a publicly traded company serving as part of the lure. dLocal additionally hopes to expand into new markets and prepare itself for the growth of blockchain, buy now/pay later central bank digital currencies and other new forms of payment.

Shortly before its IPO, dLocal added partnerships with Verve to extend its reach in Africa, enabled Google Pay in emerging markets and partnered with the fintech Dinie to power buy now/pay later for retailers in Brazil.

Cryptocurrency may be the next frontier. "Our tech's not dependent on a specific currency or payment method," Pandit said, adding dLocal supports more than 600 payment methods. "With the API we just think of crypto as another payment method, and as it evolves we'll make it available."

Paytm

Paytm has expanded beyond its core payment business into broader financial services in recent years.

Bloomberg News

The Indian payment company is continuing to raise funds ahead of its anticipated IPO later this year, with its latest raise providing a $268 million infusion. Paytm's parent, the Softbank-backed One97,

submitted draft papers

to Indian regulators earlier in July for Paytm's IPO; the company aims to raise about $2.22 billion.

Paytm, which has hired JPMorgan Chase, Goldman Sachs and local bankers such as ICICI Securities for its IPO, is

diversifying

well beyond its mobile payment app roots. Paytm recently added more financial services such as instant personal loans for small-business owners and consumers with limited credit histories.

Paytm faces increasing competition in India. Walmart's PhonePe recently introduced life insurance to augment PhonePe's mobile payment and financial services menu.

Google

has also invested heavily in India's payment market, including a connection to India's United Payments Interface, the national digital payments rail. Other U.S. firms including Mastercard, Visa, Amazon and Facebook are investing in digital payments and merchant services in India, creating a threat to Paytm's position in the market.

AvidXchange

AvidXchange CEO Michael Praeger is trying to get more businesses to ditch paper checks.

Business payments have long trailed consumer transactions in adopting automation, though the remote work that accompanied the pandemic has pushed more companies to digitize supply chains.

That's created opportunities for firms such as AvidXchange, a 21-year old Charlotte, N.C., software company that automates accounts payable and receivable, among other payment types.

AvidXchange in April hired Goldman Sachs and other investment banks to prepare an IPO for sometime in 2021 that could value the company at up to $7 billion.

In an

interview

following AvidXchange's January 2021 acquisition of Core Associates, a firm that supplies accounting and payments software for construction companies, AvisXchange CEO and co-founder Michael Preager said there are different tiers of business-to-business payments that require more diverse options from payment companies. While there's a general "horizontal" market that processes business transactions in a similar way, there are also a growing number of industries, such as construction, that have more specialized needs in payment processing.