In recent years, there have been a number of fintech players that have attracted huge investment and seen their valuations go stratospheric.
In September, payments start-up Stripe was valued at $35 billion after securing $250 million in new investment. This huge figure made Stripe the most valuable fintech company in the world. Its valuation has increased by 50 per cent since its previous funding round of $100 million in January saw it valued at $22.5 billion.
San Francisco-based Stripe provides payment infrastructure for, among others, Airbnb, Deliveroo, Spotify and Uber. Venture capital giants Sequoia Capital and Andreessen Horowitz are participants in the recent funding round.
Stripe promises to put the investment to good effect, saying it will accelerate international expansion, grow its product suite and increase its enterprise capabilities.
Elsewhere, Sweden’s Klarna which enables consumers to pay for goods over time and is experiencing rapid growth in the US, has an estimated value of $5.5 billion following a $460 million round of equity funding.
Another fintech that has seen its valuation increase spectacularly is UK digital bank Monzo, with a valuation of $2.5 billion following a $143 million injection of fresh capital in June. That’s double its previous valuation at the end of 2018. The latest investment should help Monzo achieve its ambition to expand into the US.
These companies are clearly benefiting from the funding they’re receiving, and the level of investment shows the huge potential digital payments and other financial technology have to change the way financial transactions are conducted and managed.
But massive investment and billion-dollar valuations mean greater pressure on these digital payments companies to meet the expectations of investors. And this will increase for those companies that decide to go down the IPO route, when shareholders will also expect a return on their investments.
While some pressure is good and some companies will thrive as expectations grow, there is the potential for some companies will not meet the hype that has been generated. Digital payments and fintech start-ups must therefore avoid distractions and continue to focus on what they do best to stand out from the crowd. Any complacency could see their progress stall against competitors and see investors walk away.
While the emerging players may thrive, the potential growth of digital payments and the faith investors are placing in these companies is also forcing traditional established financial services providers to sit up and take notice.
Global bank Citigroup, for instance, is working on its own digital consumer payments offering. Spring by Citi will now extend the capabilities Citi has offered to institutional clients to consumers. It will offer merchants a range of consumer payment options to collect money, including from credit cards and e-wallets.
JP Morgan, meanwhile, recently became the first foreign bank in China to offer a service that fully digitises and automates cross-border payments of goods. With the E-Customs Payment Solution, JP Morgan’s clients in China will only be required to send payment instructions with a linked customs declaration number.
With the investment spotlight firmly shining on digital payments players, there is plenty of opportunity for them to make a real impact. Indeed, the global digital payments market is expected to reach $10.1 trillion by 2024.
Whatever the fate of the highly valued fintech start-ups and the services that traditional players are introducing, it will be consumers and businesses that will benefit from the better products and services that emerge.