“Cash combined with courage in a time of crisis is priceless” - Warren Buffet
In October 2001, just after the combination of the dot-com crash and 9/11 bottomed the markets, things looked bleak. If you had the courage then to invest just $10 in the struggling quirky computer company Apple who were releasing a crazy device called the ‘Ipod’ and that ‘book store in the internet’, Amazon you would have got a share in each with even enough change left over to buy a hamburger at McDonalds. Today those two shares would be worth over $2000.
More recently, following the SARS crisis back in 2003, Alibaba turned a 4-year-old company into a global ecommerce giant that deeply penetrates Chinese citizens’ everyday lives.
Less lethal yet more transmissive than SARS, COVID-19 has frozen the global economy and drastically reduced our living space. Our range suddenly changed from “London to Tokyo”, to our bedroom to living room!
But we all still need to shop and pay for necessities. Toilet papers, food, a new sofa for a better WFH environment, a tie-dye tracksuit (because you’re an it-girl at home too) and many more!
Online this, online that
The new spending behaviour caused by COVID-19 is already shown in numbers and the trend may last.
Amazon’s Q1 sales rose by 26% compared with Q1 2019.
Dutch payment gateway Adyen posted a 34% surge in Q1 revenue and 38% increase in transaction volume YoY.
Australia-based “buy now pay later” startup Afterpay added one million new customers during the 10 week lockdown period.
Payments companies which allow ‘flexible instalments’ are gaining traction among consumers to pay for things they need over time, or letting them get further into personal debt they can’t repay - take your pick.
It is also notable that payments companies face sector specific challenges and opportunities. Payment processors and gateways saw a huge decline in travel industries. Adyen saw a decline in transaction volumes in the last four weeks of Q1 2020 but the loss was picked up by a surge in online retail volumes. However Ingenico’s at-home entertainment increase couldn’t offset the decline in airlines. It’s the best time to grow plants, frame posters and release your inner interior designer-self. Klarna has seen a 111% transaction volume growth compared to the daily average for 2020 in home furnishings retailers. The success will depend on the individual company’s client mix.
All flavours of payment startups, including Remittance, ‘Buy Now Pay Later’, ‘One-Click-Checkout’, Point of Sale and simple payment processing, are still raising investment. The graph below shows recent payments investments and the sizes of the circles indicate the amount of their latest funding.
Even pre-COVID-19, the payments market was consolidating and the trend continues. Established payment providers actively engage in M&A to build omni-channel services and full e-commerce suites from fraud detection to processing with a sleek customer interface.
FIS acquired Worldpay for $34bn in July 2019.
Visa acquired Verifi, a risk management platform for card-not-present transactions, in September 2019 and agreed to acquire Plaid, a financial services API company that powers Venmo, Betterment, American Express, in January 2020.
The European payments leader Worldline is on course for two significant acquisitions in 2020. The company agreed to acquire Ingenico that offers omni-channel payment solutions for €7.8B in February and Gopay, a payment gateway, in April.
This week we’ve mapped out payments unicorns. The sizes of the circles indicate valuation (or market capitalisation or M&A purchase price depending on the status).