Payments-related M&As are on the rise & will only accelerate. Here's why 💸; The biggest crypto deal that never happened, & what it means for the future 🤑; Will becoming a Super App save Klarna? 🤔

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Aug 21, 2022

👋 Hey, Linas here! Welcome back to a 🔓 weekly free edition 🔓 of my daily newsletter. Each day I focus on 3 stories that are making a difference in the financial technology space. Coupled with things worth watching & most important money movements, it’s the only newsletter you need for all things when Finance meets Tech.

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As for today, here are the 3 FinTech stories that were making a difference this week. It was arguably the most intense week this year! (definitely check all the above stories!)

Payments-related M&As are on the rise and will only accelerate. Here's why 💸

Spotting the trends 🔍 Two weeks ago I talked about the continuation of a massive payments consolidation when Global Payments bought EVO for a whopping $4 billion. This is how I ended my takeaway then:

As weakening economic signals raise fears of a broader slowdown, there could be another round of megamergers in the payment space that further increases consolidation.

Maybe not a mega level, but payments mergers and acquisitions (M&As) have definitely ramped up as of late. And they will only continue.

More on this 👉 Just in the last two weeks we have seen:

PayTech company Jack Henry acquiring payment infrastructure provider Payrailz.
Restaurant PayTech biz ParTech buying omnichannel restaurant ordering provider Menu Technologies.
Travel and hospitality tech provider Sabre scooping long-time payment partner Conferma Pay.
And obviously, the biggest of them all - Global Payments’ EVO acquisition, an all-cash deal that valued EVO at a whopping $4 billion.
Zooming out, we must note that there were 66 payments-related M&As in the first half of 2022 already, which is bigger than the 59 deals we saw in the same period last year, per data from The Strawhecker Group (TSG).
In the whole of 2021, there were 127 deals collectively worth $76.6 billion. While impressive, it pales in comparison to 2019’s record $169.4B in M&As when the year saw a series of megadeals (i.e FIS’ Worldpay acquisition & Fiserv’s First Data purchase).

What does this mean? 🤔 We will definitely see M&As accelerating throughout the rest of 2022. Here’s why (+ what’s next):

✈️ THE TAKEAWAY

Consolidation^2 📈 Looking at the bigger picture, it’s clear that economic uncertainty and global macro challenges are one of the key drivers fueling an uptick in payments-related M&A activities. This is happening because (1) FinTechs & PayTech companies are focusing on efficiency & profits vs. growth and scaling (M&As let businesses streamline operations, expand product suites, and value propositions and hence drive more revenues), (2) substantial decrease in FinTech valuations makes this a reasonable time for M&As (for the perspective, FinTechs have lost almost a half-trillion dollars in valuation so far in 2022 which presents buyout opportunities for larger payments companies and cash-heavy FinTechs). Looking ahead, we can be almost certain that more M&A activity will come through the rest of the year, and the number of deals should roughly match or even exceed what we have seen last year (startups might be driving this). For the perspective, more than 1 in 5 of US finance decision-makers said that merging or acquiring businesses will be a strategy they employ to drive revenue growth in 2022, per BillingPlatform. If we can use US data as a proxy, then the aforesaid hypothesis becomes even stronger. And this is even without considering the emerging markets, where VCs have fueled a lot of (same or similar) FinTechs in the last couple of years.

The biggest crypto deal that never happened, and what it means for the future 🤑

It’s over 🙅🏽‍♂️ Galaxy Digital, the cryptocurrency-focused financial services firm run by Michael Novogratz, has abandoned its plan to buy BitGo.

The reason? The crypto custody specialist reportedly had failed to provide financial statements by a deadline of the end of July.

Key context here 👉 One must remember that the acquisition was announced back in May 2021, at the time when bulls ran the markets 📈

The deal was worth about $1.2 billion in stock and cash and it was expected to close by the end of that year. If executed, it would have been one of the largest deals in crypto history.

Bonus: as of today, the largest crypto deal ever is payments FinTech Bolt buying crypto and payment infrastructure company Wyre for $1.5B in April.

What does this mean? 🤔 Although somewhat shocking, Galaxy & BitGo split yet again shows what kind of market we’re currently at and hints at what the future is going to be like. Here’s the takeaway:

✈️ THE TAKEAWAY

Different market - different game 🤷‍♂️ First and foremost, we have to realize that the proposed Digital Galaxy/BitGo deal was announced last May when the crypto market was still gathering steam and almost anything was going up. This year, however, has proven to be a much different story for digital assets, with Bitcoin alone being down nearly 65% from its November highs. Although BTC has rebounded a bit since its lows earlier this year, we’re still in the bear market. Even Galaxy’s latest results prove that - the company recently posted a mind-boggling $554M loss in the second quarter. Ouch! The same could probably be said about BitGo - what they pitched 15 months ago should have substantially changed today, not to mention the financial statements they reportedly failed to provide. Zooming out, it’s pretty clear that we should expect much more of such breakups in the coming months and/or years. A lot of people and businesses have been impacted by the crypto contagion, and I don’t think the crypto contagion is over. That said, stories like Galaxy & BitGo should become much more common from today going forward.

Will becoming a Super App save Klarna? 🤔

The launch 🚀 Struggling Swedish Buy Now, Pay Later giant Klarna is extending its app to allow UK consumers to view their full online order history, regardless of whether they are purchased using Klarna.

More on this 👉 The new feature provides consumers with a single dashboard providing a full inventory of their purchase history and product details - including images and prices, order and delivery status, package location, and pick-up information - eliminating the time-consuming effort of sifting through multiple emails or tracking parcel information across different delivery apps.

To activate the service consumers connect their email accounts to their Klarna App. The app then identifies online purchase confirmation emails and imports key data such as product images and price, delivery tracking number, carrier, and parcel tracking into the Klarna App. The feature is compatible today with Gmail and Outlook.

The rationale💡According to a recent PYMNTS report which surveyed consumers in the U.S., Germany, Australia, and the U.K, though 70% of consumers in the four countries were interested in a super app, U.K. consumers had the highest level of interest. Hence, this is why Klarna is testing its Super App more in the UK first.

Moreover, consumers in the U.K. were found to have the highest number of connected devices, with an average of 5.5 each, corroborating the findings of another PYMNTS report, “Benchmarking the Digital Transformation,” which showed the U.K. to have some of the highest rates of internet connection and smartphone penetration in the world.

✈️ THE TAKEAWAY

Will this be enough? 🤔 Taking the above into account, it’s pretty clear that the combination of a highly connected population and high demand for a single interface providing a broad range of virtual products and services, makes the UK a huge opportunity for firms like Klarna that have Super App ambitions. Furthermore, this also follows what I’ve said yesterday - BNPL providers can maintain customer appeal and increase engagement even in a recessionary environment by adding new features and solutions. But let’s leave the UK and zoom out a bit. And once you zoom out, you must remember that Klarna has launched its actual Super App back in November 2021. It now consolidates everything from shopping, payment management, price comparison (via SEK 9B Priceruner acquisition), and support for products to delivery, and returns. When it comes to finance, Klarna is already a bank in several countries offering checking and savings accounts, among IBANs and other things. Also, the BNPL giant recently launched Pay Now option globally so customers can pay in full wherever Klarna is accepted. It even has the Klarna Card which lets users pay in installments in-store & online. The Klarna Card integrates into the Klarna app and is connected with its loyalty program, Vibe. Having said that, it seems that Klarna indeed has very strong ambitions to become a global Super App that’s tied to everyone’s daily life and it might have all the components to achieve that. Yet, they haven’t become a success (at least yet), and more importantly - this wasn’t enough to convince investors for extra cash leading to Klarna losing 85% of its valuation. And this is something that is fairly worrying. So, while becoming a super app might make sense, I’m not entirely sure it can save Klarna in the long run…

🔎 What else I’m watching

Crypto hub in Cyprus 🇨🇾 Revolut has been awarded the first crypto authorization from the Cyprus Securities and Exchange Commission, which will form a new European crypto-asset hub to provide additional crypto services to its 17 million European customers, AltFi reported. The neobanking platform-come ‘super app’ is setting up its European hub as the EU’s new crypto regulatory rules MiCA come into force but is continuing to pursue a license in the UK from the Financial Conduct Authority. The new entity will allow Revolut to continue to offer its 17 million customers based in the European Economic Area exposure to crypto-assets, as per the report. UK customers, which make up the bulk of Revolut’s total 20 million global customers, will still be served by its operations in London and its UK corporate entity. But what about that banking license though? 🤔
Paying with your face? Why not 😋 Azerbaijan-based SmilePay has struck deals with two major food retailers in the country to let shoppers buy their groceries using their faces. SmilePay has secured an investment from the biggest acquirer bank in Azerbaijan, Pasha, and formed deals with the Bravo and Araz supermarket chains. Already installed at Bravo, in its first month the technology has been used for 3000 transactions from 418 users. Could this be the future of payments? 🤔

💸 Following the Money

FinTech providing BNPL services and digital finance services, Atome Financial, has announced it received $100M worth of debt facility from HSBC Singapore to boost its flexible deferred payments business across Asia.
Open finance SaaS platform Klavi has raised $15M in a Series A investment round to develop new B2B finance products. Founded in 2020, the company offers technology that generates insights from open finance data and offers products to businesses of any size.
Crypto investment firm CoinFund inaugurated a $300M venture capital (VC) fund to back early-stage blockchain projects, a sign of investor confidence in an industry plagued by a bear market.

👋 That’s it for today! Thank you for reading and have a relaxing Sunday! And if you enjoyed this newsletter, invite your friends and colleagues to sign up:

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