After a Boffo Year, Will Payments Startups Reap Another Big Funding Harvest in 2016?

It may have been a so-so year for initial public offerings in payments, but 2015 was a boffo year for private financing of payments startups. And early indications are that 2016 may be just as good.

Through Nov. 10, there were 235 funding deals for payments companies worldwide, with investments totaling $3.33 billion, according to CB Insights, a New York City-based research firm that tracks the business. Those totals should have reached 266 deals and $3.78 billion by the end of the year, the firm figures.

This record year came after a strong 2014, which saw 223 deals worth $2.43 billion. And it contrasts sharply with 2010, in which 63 funding deals totaling $445 million were completed for payments companies. “Funding to payments startups has exploded in the last [five] years,” says a CB Insights report. “Investors are pumping money into companies building new mobile-payment apps, small-business payment systems, and money-transfer services, among other things.”

It’s too early to make predictions for the new year, but Marcelo Ballve, research director at CB Insights, is cautiously optimistic that the funding trend will continue. “We don’t see any signs of the momentum behind payments declining,” he tells Digital Transactions News. “Though it’s still early, and difficult to say.”

The big funding rounds last year, according to the report, occurred in the third quarter, during which investors showered $1.53 billion in cash on startups. The major beneficiaries were One97 Communications, operator of India’s Paytm e-commerce payments service, and Ant Financial Services Group, the payments unit of Alibaba, China’s e-commerce giant. The former netted $680 million, while the latter concluded a $400 million Series A round.

The outlook for payments investment contrasts with that for private companies in general. Overall, private funding is proving to be a more difficult sell owing to factors like the slower economy in China and the Federal Reserve’s recent decision to raise U.S. interest rates. Factors like that contribute to the note of caution in Ballve’s optimism for 2016.

But the private investment market for payments firms is clearly more buoyant than that for public offerings. Square Inc., a 6-year-old startup, had built a $6 billion valuation by October, based on its latest funding round. That was enough to propel the San Francisco-based company to the top of the list of so-called payments unicorns, or private companies, nearly all startups, with valuations of $1 billion or more. But when it floated its IPO in November, it saw its valuation dive to $4.7 billion. Recent trading has clipped that number further, to $4.1 billion.

Though certainly not a startup, massive payments processor First Data Corp. also endured a so-so IPO in 2015. It ended up pricing its shares at $16 each, down from the $18-to-$20 range it had hoped for.

Since 2010, the most-funded payments startup has been One97 Communications, at $1.27 billion, according to CB Insights. The next four in order are Ant Financial ($400 million), Affirm ($325 million), Mozido ($314 million), and Klarna ($289 million). Mozido and Klarna are both payments unicorns.

The most active investors in payments startups, according to the firm’s data, are 500 Startups, with offices in San Francisco, Mountain View, Calif., and Miami, and Andreessen Horowitz, Menlo Park, Calif.