A Miami fintech startup called Pipe just passed the $2 billion valuation mark, a heady milestone for any startup. Its valuation is a sign of the investment frenzy surrounding digital payments — even though it doesn't technically process payments.
"Pipe's not necessarily a payments company. But it looks at data about payments, how payments are being collected and how those payments can be used for lending," said Farhan Lilji, a principal at Anthemis, a London-based
Many of the newest payment options — such as buy now/pay later and early wage access — are more akin to loans than traditional payments. As such, the vetting that takes place for each of these products must happen quickly, seamlessly and accurately. These tasks are handled behind the scenes by many new data-driven fintechs, which are drawing significant attention from venture capitalists even if they are invisible to consumers.
Firms invested more than $12.4 billion in e-commerce software companies during the first half of 2021, according to
Several large technology companies that focus heavily on payments, such as Stripe, Circle, Afterpay and Wise, have either
"The market has declared new winners with enormous market caps and shunned traditional payment names," said Matt Harris, partner at the Palo Alto-based Bain Capital Ventures, which has about $140 billion of assets under management and a
For example, the London-based TrueLayer in late September
Investors are favoring early-stage software companies over more established payment processors and merchant acquirers, Harris said. Small firms that have only existed for a few years, or even less, are among the most active innovators, according to Harris.
"The payments business is getting flipped on its head," Harris said. "You have the stalwarts like Stripe, but there's a whole new crop of companies."
The rush of investment is resulting in not just larger funding rounds, but also more frequent infusions, said Luis Valdich, managing director of venture investing at Citi Ventures, Citigroup's San Francisco-based investment unit, which has backed
"What's been interesting for the past two years is you're now seeing rounds every few months instead of the typical pace of every 12 to 18 months. That's pushing up the valuations," Valdich said.
Harris mentioned
Orum, a two-year old Bain portfolio company that just
"Embedded finance is hard to do," Harris said. "You need infrastructure players to make it happen."
Other emerging financial services products such as buy now/pay later and early wage access are forms of lending, requiring fast decisions, particularly to manage credit risk for installment payments at the point of sale.
That approval process requires improvements in data accumulation and analysis, according to
"BNPL is attached to the data," Kemp said. "Whether it's consumers or e-commerce sites or an extension of credit, it's all tied to the data so that [the] provider can make a correct decision."
Oak HC/FT was recently part of a $100 million investment in Clearco, a six-year Toronto-based firm formerly known as Clearbanc. Clearco uses artificial intelligence to analyze a company's payment, advertising and e-commerce performance to help inform a funding decision, usually within minutes. Clearco also relies primarily on financial and marketing data to eliminate bias from venture capital funding, in an effort to create more inclusion in investing.
"Embedded finance is embedded in all verticals," Kemp said. "It's in lending, insurance, and authentication. It's not just payments."