Private equity and venture capital investments in the payments sector surged 82% year on year in 2023, reaching $24.65 billion, the highest total value since at least 2019, according to S&P Global Market Intelligence data.
M&A activity dominated the investment landscape, comprising 63.3% of the total investment, while funding rounds accounted for the remaining roughly 36.7%.
The payments sector includes payment processors, payment service providers and gateways, mobile wallets, money transfer and remittance, and payments infrastructure.
M&A supplants funding rounds
Private equity's dominance in payments M&A reflects a shift in investor focus, said Robert Ruark, financial services strategy and fintech leader at KPMG. The payments fintech market has matured and venture capital interest has diversified to other emerging sectors such as generative AI, said Ruark.
In 2023, payments startups also had fewer late stage deals than the prior years. "We actually saw more investment activity in the seed and series A series B rounds, which are typically smaller than the late-stage deal. So just that mix shift in the types of investments VCs were making accounts for the flat lining [in the investment data]," Ruark said.
Other dynamics are also at play, according to Jeff Grabow, venture capital leader at EY Americas.
Roughly half of venture capital-invested startups haven't raised capital in two years, according to an EY analysis. "The other half that raised cash, only 3,000 of those raised more than $20 million, which isn't a lot of money in today's market."
Startups are going to need more capital and at the same time the valuation gap betweeen buyer and seller has narrowed from two years ago.
"That's probably one of the reasons that you've seen an uptick in M&A," Grabow said.
In the second quarter of 2024 through April 1, private equity-backed investments — including whole company and minority stake acquisitions, asset deals and funding rounds — totaled $5.86 billion, marking a notable increase compared to the $3.45 billion recorded for the entire second quarter of 2023.
The decrease in the number of deals within the payments sector since the first quarter of 2021 highlights the trend of declining funding rounds.
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Largest transactions
In 2023, the largest private-equity backed deal in the payments sector was the majority stake acquisition of WorldPay (UK) Ltd. for $12.7 billion by GTCR LLC. Followed next was the approximately $6.9 billion funding round of Stripe Inc. led by Andreessen Horowitz LLC, Baillie Gifford & Co., General Catalyst Group Management LLC, MSD Partners LP and Thrive Capital Management LLC.
The largest deal in 2024 included the acquisition of Nuvei Corp. in a $5.86 billion deal by Advent, Novacap TMT and Caisse de dépôt et placement du Québec.
The Nuvei transaction "is a good sign that we're going to see some continued deal making," KPMG's Ruark said.
Additionally, some companies in the sector that went public via SPACs or reverse mergers in 2020–2021 have low valuations.
"It's creating the opportunity for potential take privates just like we're seeing with the Advent-Nuvei deal. Nuvei was growing quite well and had good results. But [the valuation] made them a great candidate for a takeover by private equity firm."
