It has been disclosed that venture capital investment in European payment companies is surpassing dotcom boom levels, boosted by the fast take-up of digital technologies and shifts in consumer behaviour.
Nascent payments and transaction processing companies in Europe raised $417.9 million through 26 deals in the nine months to September, more than seven times what was raised during the same period last year, according to figures from data provider Dow Jones VentureSource. It is the highest annual amount raised since VentureSource started recording data in 2000 – reports the Wall Street Journal.
The previous yearly high was $250.2 million raised in 2000.
In the first quarter alone companies raised $216.8 million through 12 deals, compared with $2.97 million through two deals the same quarter a year earlier. It was the highest quarter on record.
Market participants say the boom is in part driven by the fact that commerce is increasingly moving online and on to mobile phones, creating the need and opportunity for effective payments solutions for the digital world.
Niklas Adalberth, co-founder and deputy chief executive of Swedish online payments company Klarna, said: “The payments sector is a secular growth market. People are changing their behavioural patterns and commerce is moving from the street to the mobile. Investors want to be there when that truly happens.”
Klarna raised $124.2 million from venture capital firms including Atomico, General Atlantic and Sequoia Capital in March – the largest European payments venture-backed deal this year, according to VentureSource. This was followed by London-based e-commerce company Powa Technologies, which raised $80 million from Wellington Management in November, and Swedish mobile payments start-up iZettle, which raised $62 million from investors including Index Ventures and Greylock Partners in May.
The increase in investments is also driven by changes in the payments ecosystem itself, according to Michiel Kotting, a partner at venture capital firm Accel Partners. These range from “the uptake of bitcoin to the proliferation of financial services outside of traditional financial institutions”, he said.
Investment in payments companies grew at a faster pace in Europe than globally in the nine months to the end of September. Payments and transaction companies raised $1.18 billion through 75 deals globally in the first three quarters of the year, compared with $533 million through 75 deals in the same period last year.
Kotting said: “Europe has been leading edge, in part through the talent and innovation London attracts as one of the leading global financial centres, and because of the emergence of many different and creative solutions from across the continent.”
Fabian Vandenreydt, head of Innotribe, the innovation arm of payments giant Swift, said: “The interesting thing is that we are seeing more banks acting as VCs themselves and investing in payments companies. The payments space is the one that people look at because they see lots of disruption happening. They are investing in various payments possibilities so as not to miss one.”
Investors expect investment volumes in the payments sector to continue to grow.
Kotting said: “The underlying trends that have led to innovation in the financial services industry are only strengthening, so we expect the investment volume to continue to grow. Members of Generation Y won’t start their search for financial products inside a bank branch.”
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