Digital payments are part of our everyday life now. We pay without even noticing by calling an Uber or ordering food delivery. We can send money to friends as easily as sending an iMessage. It is no surprise then to see so much discussion about the arrival of the cashless era.
We wanted to take a closer look at the digital payment startups landscape to answer the following questions:
What are the emerging focus areas and players in the digital payment space?
What are the opportunity spaces where few players currently exist?
What investment bets are being made by VCs, finance firms, and the big tech companies?
Quid has over 1.5 million private and public companies profiles in our database and we found 3,838 global startups founded after 2005 that develop and offer digital payment technology. Quid’s algorithm then categorized the companies dataset into 10 major themes. In the network below, each node represents a company and are colored by different focus areas.
Mobile payment (light blue), Credit Card Processing (teal), and Small and Medium Business Services (green) were the three largest focus areas in the industry. Nodes on the left side are quite dense, indicating that startups in these areas are largely focused on similar challenges. On the other hand, nodes on the right are more spread out and there are white spaces between different focus areas (different colors) which suggests there could be new adjacent opportunities.
Quid can segment these clusters into more specific detail. The network map with a lower granularity looks like this:
From this map we found that Healthcare Payments (dark pink at top of network) is a quite distinct field that is notably different from the companies in all other focus areas of digital payments. There is also white space between Digital Currency (yellow on the right) and two other closely-linked clusters - Fraud Detection (red) and Biometric Identification (beige). This suggests there are few startups bridging those two areas.
We also dove into recent investment and M&A trends using Quid. Quid’s companies dataset includes comprehensive information such as investors and acquirers, investment and acquisition amount, date of the deal, and target location etc.
Global investments within digital payment have increased significantly since the start of the decade. Even though the number of investment events peaked in 2015, the investment amount in 2017 ($6.5 billion) stayed close to 2015 totals ($7.4 billion). Given the number of investments, the average investment amount per one deal in 2017 ($15.6 million) was significantly higher than the one in 2015 ($12.3 million). Online banking services received the highest investment amount in general, while the investment in digital currency surged last year. The largest single funding rounds in last 10 years were for ZhongAn Online Insurance (a Chinese insure-tech) in 2015, and Zfere Holdings, who offers a mobile payment and transaction system, in 2011.
We could also identify top investors from each category. Y Combinator and 500 Startups led all by number of investments. Within the big tech firms, Intel has invested in twice as many startups as runner-ups Alphabet (Google) and Tencent. Intel is more focused in data centers and data analytics technology while Tencent focused 27% of their investment in digital currency. Google Ventures were generally more diverse - spreading bets across mobile payment, credit card processing, and other areas. Among financial firms, American Express and Goldman Sachs have been leading the startup investment landscape, each investing in more than 10 digital payment startups. The above chart highlights the varying focus areas by investor and give us a sense of the lead strategy for each.
We looked at the top acquirers too. This time we categorized the acquirers by Finance, Technology, and FinTech. Paypal acquired the most digital payment startups that were founded after 2005, including Venmo. Alphabet (Google) and Naspers, a multinational internet and media group who also owns one thirds of China’s Tencent stake, followed.
We also took a geographic view of these startups to see which are located outside America. Out of 3,838 digital payment startups we looked at, 57% were headquartered somewhere other than the US. In the above scatterplot, the X-axis represents the median founding year of companies in each country and the Y-axis represents total investment amounts companies in each country have received. US companies have been excluded from this visual. United Kingdom and India had a larger number of startups founded while companies in China have received more investment dollars in total (followed by India and Singapore).
The digital payment space is clearly still growing at a rapid pace. As new sectors like Digital Currency expand and growth outside the US increases, the category will continue driving innovation.
For more information around this topic or to learn more about Quid, get in touch at firstname.lastname@example.org.
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