#payments insights. opinions. Volume 16 - Ernst & Young will need to decide how to position themselves within this new environment. Continued on page 3 #payments insights. opinions

The road toward a European instant payment solution

The delivery of online retail goods has continuously accelerated over the past few years — services like Amazon Now will now deliver shipments within a few hours throughout the world. In most countries, traditional payment systems are still lagging behind and take days to process a standard credit transfer. Furthermore, banks are only processing payments on working days. To increase the efficiency of capital flows and to respond to rising customer expectations, new “instant” payment schemes are being developed in many countries worldwide.

In December 2016, the European Payments Council (EPC) presented its response to the mandate of the European Central Bank (ECB) to set up a rulebook for an instant payment system. The SEPA Instant Credit Transfer scheme (SCT Inst) will be rolled out by participating banks at the end of 2017. Banks, as well as all other payment-related service providers, will need to decide how to position themselves within this new environment. Continued on page 3

#paymentsinsights. opinions.

Volume 16

» From batch to real-time processing, instant payments are gaining traction in Europe and lead to new challenges for payment companies

The journey toward a European instant payment solution A European instant payment scheme will be rolled out at the end of 2017 — we analyze specifications and implications on stakeholders in the payments sector.

Cross-border payments: market, challenges and opportunities Cross-border payments are expected to grow steadily over the next few years and present new challenges and opportunities.

M&A roundup Deal activity in the payments industry rallied in the first quarter of 2017 following a decline in the last quarter of 2016.

VC roundup In Q1 2017, investors sought opportunities in payment FinTechs across a range of maturity stages, focusing their attention on the money transfer and payment acceptance segments.

Transaction overview M&A and VC

Editorial

Dear readers,

It’s a great pleasure for me to introduce the new edition of #payments — the quarterly global newsletter of the EY payments team.

The evolution of the payments industry continues to be driven by

changes in technology and customer behavior. We work with clients to help them keep pace and capture the opportunities inherent in this shifting landscape.

EY’s payments team is a global leader helping banks, card issuers, merchant acquirers, payment schemes, transaction processors, payment service providers, merchants and technology firms with strategy, business and technology, architecture, risk, regulatory and transaction advice.

Our global team of dedicated professionals brings a breadth of expertise to our work with clients, focusing on core payments, card payments and digital payments.

#payments provides insights and opinions regarding the key topics driving the payments industry and provides a broad overview of the latest M&A and VC transactions.

Each edition will be introduced by a foreword from another member of the EY payments leadership team. Watch this space for contributions by my colleagues Margaret Weichert (Americas), Jan Bellens and James Lloyd (Asia-Pacific), Hamish Thomas, Christopher Schmitz and Andreas Habersetzer (EMEIA).

Best,

Kai-Christian ClausPartner

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Payments evolution: striking the balance between regulation and innovation Payment providers must balance their focus and investment to ensure they meet both customer expectations as well as rising regulatory demands.

The impact of technological innovations on the payments industry Innovations are encouraging the emergence of integrated ecosystems and forcing the payment industry to respond to new requirements.

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The journey toward a European instant payment solutionContinued from page 1

What are instant payments?The ECB defines instant payments as “electronic retail payment solutions available throughout the year and resulting in the immediate or close to immediate inter-bank clearing of the transaction and crediting of the payee’s account (within seconds of payment initiation), irrespective of the underlying payment instrument used (credit transfer, direct debit or payment card) and of the underlying clearing and settlement arrangements.”1

There are different systems of “faster,” “real-time” or “instant” payments with multiple specifications, protocols and requirements. But there are common characteristics which differentiate them from the established systems: the transaction is authorized immediately (i.e., in seconds or minutes, not in days). Funds are available to the recipient (almost) instantly through a quick clearing process. The whole procedure is confirmed to the payer

and payee within minutes, if not in real time, and, once confirmed, the transaction is irrevocable. As a result, these kinds of payments cannot be realized using the traditional batch-based systems of banks where end-to-end money transfers take days — completely new systems and infrastructure are required.

Interestingly, the initial idea of real-time payments is not new. The first instant payment system was implemented in Japan in 1973. Since then, different countries have devised various systems for quicker, (near) real-time payments. There are currently some 20 live systems worldwide with many more in the process of being developed or rolled out. In 2016, the UK “faster payment” scheme processed 1.4 billion transactions amounting to a value of approximately £1.1 trillion. Various new instant payment systems are under development, e.g., in Hong Kong, Australia or the USA.

Hence, when the idea of a European-wide interoperable scheme based on the SEPA format was first introduced in December 2014, there were four European countries (the UK, Denmark, Poland and Sweden) which already had real-time systems running. To prevent a fragmentation of systems with no compatibility, the ECB mandated the European Retail Payments Board (ERPB)

1 Pan-European instant payments in euro: definition, vision and way forward, European Central Bank, 2014.

The EPC and ERPB have defined the key characteristics of the SCT Inst scheme as follows:

• Payment takes place in a maximum of 10 seconds.

• Transactions will be limited to €15,000.

• The scheme covers credit transfers in euros only.

Figure 1: Instant payments implementations

Under developmentSEPA countriesRunning instant payment systems

Sources: FIS — Flavours of fast — A trip around the world in immediate payments, May 2015 SWIFT — Payments stream — Real- time payments (presentation delivered at the SWIFT Nordics Regional Conference 2015 in Copenhagen).

Mexico (2004)

Nigeria (2011)

Brazil (2002)

South Africa (2006)

Switzerland (1987) UK (2008)

Iceland (2000)

Sweden (2012)

Poland (2012)

Denmark (2014)

Turkey (1992)

India (2010)

Japan (1973)

Taiwan (1995)

Mainland China (2010)

Singapore (2014)

Chile (2008)

South Korea (2001)

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to develop an instant payment scheme on the basis of the current SEPA scheme. The ultimate goal is to create an interoperable system for all 34 SEPA countries. Impact analysisAccording to our analysis, there is a significant impact on different stakeholders in the payments ecosystem.

Merchant acquirersInstant payments will have a significant impact on the acquiring industry’s defining factors. One value proposition of acquirers is the payment guarantee they have for merchants. Assuming that schemes will

switch to instant payments as the underlying payment instrument, the payment transaction will be available instantly and is, once received, will be irrevocable, which eliminates the need for an explicit payment guarantee. Of course, for the time being, there are still other important functions of merchant acquirers that will remain relevant: the management of merchant risk (to secure consumers), routing and switching of transactions, the provision and maintenance of a point-of-sale (POS) terminal, etc. However, if our hypothesis holds true, acquirers need to quickly adapt to the changing environment in which they are operating.

SchemesEven though Mastercard openly claims acquiring VocaLink does not imply anything, it is notable that the schemes have already made strategic acquisitions to brace themselves for possible future disruption in the payments landscape. Nevertheless, pressure on margins of European payment schemes will increase even further because of new competition from a highly efficient instant payment system.

ConsumersThere are a few scenarios in which the increased transaction speed will provide real benefits for consumers. The initial setup of SCT Inst does not really fit as a universal payment method at the POS. Initiating and authorizing an instant payment at the POS would take significantly more time than a cash or card-based payment. This might change online where it would be sufficient for the merchant to receive the payment just seconds after the transaction. But still, this would not be as convenient as alternative payment methods like PayPal. Again, new ways of authentication that will be pushed by the PSD2 may result in improvement. In combination with new roles for “third-party payment providers,” attractive new propositions for consumers might arise. This will affect online payments as well as new services for P2P payments.

MerchantsThe impact on merchants is limited. Instant payments could be a valuable addition to the payment options offered (prepayment via instant payment). Advantages may arise as payments are received quicker overall, reducing costs associated with credit default risks and giving the merchants increased liquidity.

BanksEuropean banks are located at the epicenter of the instant payment development. Their timeframe and pace of adopting instant payments dictates the momentum of the

The ultimate goal is to create a pan-European instant payments system.

Figure 2: UK‘s faster payments development

Source: www.fasterpayments.org.uk/about-us/statistics (accessed on 25.04.17).

Single immediate payments Forward dated payments Standing order payments

120.000

110.000

100.000

90.000

80.000

70.000

60.000

50.000

40.000

30.000

20.000

10.000

0

Value of transactions (in £m)

2009 2010 2011 2012 2013 2014 2015 2016 2017May 2008

Regulatory change (Regulation 70) leading to surge in volumes in 2012

The journey toward a European instant payment solution

3%Traditional payments compound annual growth rate (CAGR)

105% Instant payments CAGR

Instant payments

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development. The initial investment needed to satisfy the requirements of the new system will be significant. Although the new scheme will not initially be mandatory, we expect a quick market adoption after the first relevant market players have invested, creating pressure on the laggards. Furthermore, instant payments are not just affecting the processing components — due to its speed and irrevocability, fraud will become an even greater threat that needs to be monitored.

One notable minor impact on banks will be the decreasing interest income from “payment float” as there will be only seconds between debiting the payer and crediting the payee (and not days as with today’s systems). However, this revenue is most likely negligible in the current interest environment.

(Online) payment service providersWe do not anticipate any immediate or great impacts on payment service providers (PSPs). Their main functions, the technical consolidation of payment methods and the aggregation of payments to be disbursed to the merchants will still be required in

There is a significant impact on different stakeholders in the payments ecosystem.

Kai-Christian Claus

Lucas Wirmer

Torben Otten

The journey toward a European instant payment solution

the future. However, there might be changes in the share of payment methods used by consumers, creating pressure on margins in the end again.

Alternative payment methodsThe impact on alternative payment methods will be significant for credit transfer-based payment methods like Sofort since they are based on the confirmation of a credit transfer to the merchant. In the future, the merchant himself can confirm the transaction in a few seconds without any third party. Apart from this, we do not see any immediate impact on systems like PayPal as their core USP has been built around the check-out process and the connected user experience.

In conclusion, we see significant impacts from instant payments for many types of payment players as soon as the adoption in the background takes place (e.g., payment schemes using SCT Inst). We may still be a few years away from this yet, but payment companies should build their strategy to cope with the new environment sooner rather than later.

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Payments evolution: striking the balance between regulation and innovationRegulation, technology and product innovation, new players, and increasing customer expectations are changing the face of the payments industry in the UK and beyond, and are challenging participants to rethink what they need to do to be successful. Payments are key to an effective economy and are a core function for banks in terms of their product range and service. The world of payments is constantly evolving and individuals and businesses are using more and more convenient, accessible, electronic payment products.

An ever-increasing rate of change is now being experienced. This can be attributed to:• An evolving regulatory vision driving new

payment regulations and legislation• Higher customer expectations• Emergent competitor landscape• Increasing cross-border activity and

globalization of the payments market• Innovative use of technology

This changing landscape poses both challenges and opportunities and, in some cases, it even blurs the lines between

regulation and innovation. Open banking, for example, requires financial institutions to open up infrastructure with the objective of enhancing data sharing and enabling third-party payment initiation and competition.

In this article, we discuss how banks must balance the investment and innovation needed to focus on meeting customers’ expectations with the demands of the regulatory environment.

An evolving regulatory visionTransparency, fairness to customers, competition and innovation are the declared thrust of much of the regulatory change hitting the payments world, along with the ever-present underlying requirements for controls and reporting.

Figure 3: The payments evolution

AML and sanctions compliance

Liquidity regime Security

EU EMD Account switching Reliability Tech players

SEPA Basel III MobilityAggregators, PCWs, telcos

Open Banking FATCA Immediacy Specialist FinTechs

Advanced analytics

PSD2 Structural reform Ease of useDigital platform banks Digital currency

solutions (e.g., blockchain)

Wearable technology

An evolving regulatory vision

Direct impact Indirect impact

Increasing customer expectations

Emergent competitor landscape

Increasing cross-border activity and globalization

Innovative use of technology

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There is a plethora of regulatory developments impacting the UK and Europe both directly (e.g., open banking) and indirectly (e.g., structural reform). Furthermore, ongoing scrutiny of AML and sanctions measures won’t subside. Firms need to prepare themselves for changes in the regulatory regime and need to assess not only the risks, but also the opportunities that these new regulations present, examples of which are set out below in figure 4.

Customer expectationsCustomers in the payments industry represent a broad spectrum from the individual consumer interacting at the branch, online, by phone, at the point of sale or via their mobile phone to global treasurers of large multinational corporate clients. Customers want not just value for money, but also to play an active role in

tailoring their products and services. Their demands are increasingly characterized by:

• Ease of use, flexibility and personali zation: Customers used to intuitive, convenient, easy-to-use mobile and internet products are unforgiving of “clunky” experiences. This is particularly challenging when addressing security considerations, for example, card readers for online banking authentication.

• Immediacy: There is an ever higher expectation for real-time capability of peer-to-peer payments and real-time notifications and balances provision to the treasurers of corporate banking customers.

• Mobility: The provision of services across channels is now a hygiene factor with an ever higher emphasis placed on the mobile channel. Delivering the right front-

Firms need to assess not only the risks, but also the opportunities that new regulations present.

end experience and information back to customers is highly dependent upon effective, adaptable, efficiently running payments IT and operations.

• Reliability: Failures in payment systems can have dramatic consequences. At market level, they can create issues throughout the economy and, at customer level, they can be not just inconvenient, but also costly in terms of missed payments or being unable to access funds.

• Security: From channel through to back-end processing, the need to pre-empt and respond to the latest threats won’t ease. Banks have traditionally been seen as trustworthy and reliable in this area when compared with new entrants, so as innovation is embraced, the robustness of this reputation needs to be protected.

Figure 4: Assessing the risks and opportunities of open banking

Disintermediation

Data portability

Payment initiation

Product reference data

Access to payment infrastructure

Non-compliance/ fines

New revenue models

Margin compression

Implementation overruns

Security

Legal Reassessing contractual arrangements

Partnerships

Technology driven transformation

• Disintermediation of banks as customers interact more with third parties to access accounts or account functionality

• Misinterpretation of regulations and directives

• Fines or loss of reputation

• Loss of uniquedata set or competitive advantage

• Loss of payment margin skim

• Non-compliance due to tight time frames

• Overspend due to overlapping projects

• Risk of opening up bank data and systems

• Fines or loss of reputation and damage to relationships with third-party suppliers

• Exposure to new liability regime

• Ambiguity on contractual relationships

• Opportunity to assess permissioning, contractual and productterms and conditions (T&C) requirements, and impact on customer journeys

• Opportunity for forward-thinking banks to diversify their application programming interface (API) offerings and generate new revenue streams

• Pursue capability-led partnerships with FinTechs and data-led partnerships with adjacent industries

• Compliance with new regulations to help banks deliver faster and cheaper payments, and data systems

• Experiment with transformative technologies, including identity systems, tokenization, data exchanges, smart contracts and blockchain

Risks Opportunities

Strategic

Compliance and security

Legal

Striking the balance between regulation and innovation

Payments evolution

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The balancing actWith multiple layers of regulation and industry innovation converging to impact on payments systems and operations, payment providers need to form a view about how these dimensions of demand will impact their payments, IT and operations. They also need to establish a holistic portfolio management approach, set up not only to deliver change driven by what is known today, but also to effectively phase in future regulatory demands and business needs (see figure 5). Taking this approach, any investment made will help a firm respond not only to new regulatory requirements, but also to business needs and enable the creation of innovative and forward-looking payments systems.

What should you do next? 1. Understand the regulatory and technological landscape and how it will drive changeRegulatory efforts to enhance competition and customer experience are catalysts for the innovation in the payments industry. Regulation can no longer be perceived as an independent requirement; it has become intrinsically linked with customer experience and innovation. To understand how these moving parts will impact your business, it is essential that you:

• Understand the scope of regulatory changes and technological advances, and anticipate how they may evolve over time

• Identify the impact that regulatory requirements will have on your business model, customers, market trends, current and potential future competitors

• Analyze the opportunities and risks presented by the changing landscape

Payments providers need to establish a holistic portfolio management approach to deliver change and phase in future regulatory demands and business needs.

Figure 5: Payment providers are being challenged to meet regulators’ expectations while delivering against their strategic agendas — centered on the customer, fueled by product and technology innovation

Strategic business requirements

Regulatory change and risk management

Payments business strategy

Enablers

Integrated business change

Organization and governance

Business process and operations

IT architecture

Customers

Geography

Channels Products

Proposition unbundling

Understanding how open banking will drive change

UX as stand-alone

Distributed functionality

Account commoditization

Personalization


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2. Determine your payments strategyThere are many permutations of how each bank can exist in the future. As we begin to see a fundamental shift in the way that customers and banking providers interact, the key questions to consider are:

• Where do you want to sit on the regulatory and technological spectrum: from minimal compliance to targeting strategic growth?

• What will your customer expectations be in the future? How do you want to engage with them?

• What sort of relationship do you want to develop with emerging FinTechs?

• What are the barriers that will prevent customers from adopting new products or forming new relationships? How will you overcome these?

3. Understand your readiness position and develop a road mapThe next step is to consider your current readiness position and the steps you need to take to achieve your strategic goal:

• Recognize how to leverage your market position or expertise to thrive in the changing environment

• Understand the gaps that exist between your current position and your strategic goal as well as the operational and financial impacts on closing these gaps

• Consider how you will track regulatory requirements and progress toward meeting them

• Determine your road map and test levels of senior stakeholder “buy-in”

4. Establish a holistic portfolio management approachIt is important to meet regulatory require-ments whilst also serving business needs. Key questions to consider include:

• How will you determine which projects should be pursued and how will you measure the benefits?

• How will you manage the value chain of innovation?

• How will you ensure that you continuously review your position in the market and adapt to new factors?

While nobody can predict exactly how the payments landscape will evolve over the coming years, we can be certain that it will undergo fundamental change. It is an exciting and challenging time for banks; those who strike the balance between managing regulatory change and innovative thinking will be the winners, while those who underestimate the risks and opportunities will be left behind.

There are many permutations of how banks can exist in the future.

Heather Clarke

Hamish Thomas

Figure 6: Determining your strategy: PSD2 stand-alone

Comply

Compete

• Access to accounts• Security

• One-leg-out transactions• All currencies

• Complaints handling

Applicationprogramminginterface (APIs++)E.g., going beyond the PSD2 requirements, capability carve-out, data and analytics service, cross-sector integration

Cross sell at point of transaction I.e., PSD2 opens up the ability for merchants to provide additional financial services at point of sale

Partner with merchants E.g., merchants who take the option of operating a Payment initiation service provider (PISP )will have the option to work with banks to deliver improved customer experience

Partner with Third Party Payment Service Provider (TPP)E.g., Personal Finance Management (PFM), special offers, analytics

Compete as a TPP Providing PISP and Account Informatioon Service Provider (AISP)

Geographic expansion


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The impact of technological innovations on the payments industryHow the move toward integrated ecosystems is forcing providers of payments services to progress

The payments industry has relied heavily on technology to conduct its operations for some time now. Thus, it is no surpise that innovations in the technology sector are contributing to shaping its evolution. However, the speed of technological enhancements might significantly increase over the coming years, posing new challenges and opportunities for providers of payment services and ultimately forcing them to keep up with innovation in order to stay relevant in the market. In time, technological developments will lead to the emergence of what might be defined as integrated ecosystems. Ecosystems generally describe living organisms closely interacting within their habitat. In an economic sense, the meaning of the word “ecosystem” encompasses “an economic community supported by a foundation of interacting organizations and individuals —the organisms of the business world.”2 Digitalization of products and services is currently giving birth to digital ecosystems. Integrated ecosystems then result from the additional links formed between the digital and the physical worlds where inanimate, but smart objects connected to each other and the environment around them play a bigger role. As such, today’s almost non-existent interaction between objects as well as the expectations that consumers have regarding the purchasing processes will undergo change.

Providers of payments services will then be required to offer the right products to support these new needs or leave space for newcomers on the market. The adoption of new technologies is already making the act of paying seamless and less salient. For

instance, innovative companies operating within the market are already offering the option to transfer money through a digital intelligent personal assistant (e.g., Siri from Apple)3 and soon, even by typing into a chatbot (software designed to conduct a textual conversation with the user) to make an international transfer. 4 The emergence of integrated ecosystems might further marginalize the role of payments to a “back-office operation,” which would still be fundamental but which would also be conducted in the background of the various purchasing processes without consumers even really noticing. A very early example of this scenario with a consumer still acting in the physical world is Amazon Go.5 It will then be critical to provide payment systems that are easily assimilated into the various platforms linking such integrated ecosystems. This will require providers of payment services to adapt to a changed environment where the transfer of monetary values is no longer prominent and where application programming interfaces (APIs) as well as white-label solutions will be the

starting point for fierce competition as well as more streamlined and commoditized payments. The first challenge for providers of payment services will then be to identify the main access points through which the consumers and objects will interact with the integrated environment around them since they will represent the main gateway to services and consequently also to payments. Under such circumstances, the smartphone could still play a critical role, at least in the short term, even though this does not imply that other devices might not eventually replace it and that manufacturers of other products, such as watches, clothes, cand cars, might not try to get directly involved in this evolution. Nevertheless, previous ventures undertaken by newcomers in the payments field like Merchants Customer Exchange (MCX), the company behind the mobile payment solution CurrentC proposed by a consortium led by Walmart, underline how hard it can be to achieve wide acceptance in multi-sided markets like payments. Furthermore, the immediate adoption of possible disruptive

Figure 7: An integrated ecosystem

2 James Moore, The Death of Competition: Leadership and Strategy in the Age of Business (Harper Business, 1996).3 https://n26.com/number26-meets-apple-siri/ (accessed on 24.04.17).4 www.reuters.com/article/us-transferwise-facebook-idUSKBN1600D0 (accessed on 24.04.17).5 www.amazon.com/b?node=16008589011 (accessed on 24.04.17).

Integrated ecosystems

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innovations could be limited by the hurdles imposed by stringent know-your-customer (KYC) and anti-money laundering (AML) processes. However, it is important to mention that clear actions separating low- and high-value payments have already been undertaken.6 Moreover, technologies like blockchain could provide further help in overcoming these hurdles, especially if used as a repository for digital identities or even a tracker of transactions via distributed ledgers. All in all, the future of providers of payment services will be defined by their ability to position themselves well within future-integrated ecosystems and, as one inspiring personality used to say, “Innovation is the only way to win.”7 It is therefore profoundly important that, payment service providers identify the impact that technological innovations could have on their operations and on all of the

members of integrated ecosystems in a timely manner in order to bring the right innovations to the market. However, since innovations are not able to generate profits on their own, they should not come at all costs and should be accompanied by a successful business model. This will require the development of adequate strategies anticipating major trends and allowing prompt reactions to changes due to a dynamic environment. Sustainability and flexibility could represent paradigms that might confer an edge to the company embracing them. Nevertheless, the decision about which strategy is the most suitable for a specific player will mostly be a matter of circumstances and objectives. As such, incremental innovations that should be integrated within the framework of existing infrastructures might work more effectively if developed internally. Having own innovation labs might ensure that useful knowledge is protected and ultimately provide input for undiscovered opportunities. However, the costs required and the risks associated with potentially disappointing returns on capital invested might make them prohibitive for constrained budgets. Being open to cooperate and selectively choosing reliable partners to foster innovations and leverage synergies might represent an alternative. Cooperation with established players might be better suited for innovations where coordination among incumbents is necessary, such as for the establishment of specific standards as well as to share the burden of long-term basic research. Further examples already seen in the industry are collaborations with dedicated FinTechs, which can help overcome inefficient internal bureaucracies and could speed up the emergence of new ideas that lead to radical innovations. M&A activity might then represent the fastest option to acquire new knowledge and technology as well as a talented pool of employees. However, it is ultimately cooperation with trustworthy companies from fields other than payments that might

Innovation is essential for winning in payments.

6 Final Report on Draft Regulatory Technical Standards on Strong Customer Authentication and common and secure communication under Article 98 of Directive 015/2366 (PSD2), European Banking Authority, 23 February 2017 (EBA/RTS/2017/02).

7 Quote from Steven Paul Jobs (*1955 — † 2011).

Christopher Schmitz

Alexander Christoph

Francesco Pisani

represent a distinctive advantage in future-integrated ecosystems. The innovation process should then be fragmented in concrete and possibly measurable milestones representing specified real options for continuing the project. Testing products early in their development and improving them via an iterative process with a group of customers would represent the necessary steps to take so that work undertaken would not be jeopardized by a product which does not suit the market. Although this could awaken the interest and response of competitors, it might also put the company in a better public position if effectively communicated.

The impact on the payment industry

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Cross-border payments: market, challenges and opportunitiesAn increasingly global economy and international trade has allowed consumers and businesses to sell and acquire products and services across global markets. This has resulted in the rise of cross-border payments which has seen steady growth over the last few years. Several factors are influencing the rise of cross-border payments.

Accelerated growth in global businesses: Consumers and businesses are spending more and more money abroad as they have become more open to purchasing products and services across borders. Large cross-border payments are occurring more frequently.

Consumer preference for mobile and digital: Consumers have an increasing desire for convenient, cost-effective and transparent solutions. The growth and ease of e-commerce solutions has increased transaction volume for web and mobile channels.

Disruptive players shaping global payments: Emerging companies are increasing leveraging technology solutions to enable cross-border payments targeting the SME segment. They are focused on providing more suitable, cost-effective and transparent solutions.

Cross-border marketThe cross-border payments market in 2015 was estimated to have a transaction volume of US$22 trillion and it is expected to grow by approximately 4.6% over the next five years. Cross-border payments have shown a higher growth rate within emerging markets compared with mature ones.

Macroeconomic factors influence trade between countries and this can have a direct impact on cross-border payments as observed in 2015. While enjoying steady growth between 2010 and 2014, cross-border payments declined in 2015.

In 2015, the cross-border payments market declined, mainly impacted by international trade because of a slow recovery in Europe and slow-down of China’s economic growthrate.

The cross-border market is frequently divided into four main segments: business to business, consumer to business, business to consumer and consumer to consumer (also known as peer to peer). It is expected that these four segments will continue to grow steadily with the consumer-to-business segment growing the most.

Cross-border segments1. Business to business (B2B)B2B has the highest transaction value of the four segments with US$21 trillion in 2015. Over the last five years, B2B segment growth has slowed down to 2%; however, the transaction volume increased significantly to 9% over the last five years.

Growth in the B2B segment is primarily driven by growth in small- and medium-sized enterprises (SMEs), which are trading more across borders. SMEs now represent 25% of international trade in the B2B segment. Transaction sizes for these

SMEs tend to be lower in value resulting in slow growth of transaction value in the B2B segment. However, transaction volumes have increased and have in turn demonstrated strong growth.

The B2B segment consists of international exports and imports of merchandise and commercial services. Global merchandise represents the majority of B2B business; however, transaction value has decreased over the past few years because of volatility in commodity prices. On the other

Source: EY Analysis; Glenbrook Partners, Survey: Cross-border Payment Perspectices, 20.09.2011.

Figure 9: Business segment split

Source: EY Analysis, WTO, World Bank.

B2B US$21.2t C2B US$340b

P2P US$601b B2C US$4128b

Cross-border payment

US$22 trillion

2010 2011 2012 2013 2014 2015 2020e

2524

23

20

25

22

28

4.6%

2.4%

CAGR (2010–15)

Projected CAGR (2015—20)

Figure 8: Cross-border payments value (US$t)

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hand, trade in commercial services has grown at a faster rate where travel, telecommunication and professional services represent more than half of international commercial services.

The US and EU still dominate B2B transactions, representing almost 40% of international trade (including intra- EU trade). However, the APAC region is becoming one of the most important regions for international trade, representing almost 20% of international trade (where countries like China and India continue to grow at a faster rate than other markets).

The B2B segment consists of international exports and imports of merchandise and commercial services. Global merchandise represents the majority of B2B business; however, transaction value has decreased over the past few years because of volatility in commodity prices. On the other hand, trade in commercial services has grown at a faster rate where travel, telecommunication and professional services represent more than half of international commercial services.

2. Consumer to business (C2B)Retail cross-border volume is poised to take over the business to business market within the next 10 years. It currently represents US$340 billion and at 25% has the highest growth rate across all the other segments over the past five years. C2B growth has mainly been driven by e-commerce transactions and brick-and-mortar online sales. Retail payment margins tend to be richer here than in B2B, but current competition and market concentration have driven margins down.

Merchants are mainly responsible for driving the shift to e-commerce as they find opportunities to expand their international market through marketplaces, such as Amazon and eBay. At the same time, shoppers across borders, especially in emerging markets, are increasingly buying abroad. This has

benefited the C2B cross-border industry, which currently represents 20% of the overall e-commerce industry, and it is expected to be 30% within the next 10 years.

The cross-border C2B segment is moving toward a seamless experience in marketplaces operating similarly across borders and driving international consumer spending. Payment service providers, like Amazon Payments, Alipay and PayPal, have built up the capacities to serve this growing market by managing payments

Retail cross-border market is poised for significant growth.

functions, such as currency handling in-house, which is affecting the overall retail market economy and driving margins down.

3. Business to consumer (B2C)This segment is mainly focused on businesses paying out payroll, pensions or benefits to offshore employees and contract laborers. E-marketplaces are offering businesses opportunities to provide services and goods to consumers. This segment includes e-marketplaces

Figure 10: Importance of cross-border e-commerce

C2B Value in 2015

Source: EY Analysis, WorldPay, Forrester.

C2B Value in 2020

Global e-commerce

US$1.7t

Global e-commerce

US$2.8t

Cross-border e-commerce

US$340b

Cross-border e-commerce

US$756b

Market, challenges and opportunities

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Volume 16

of services and goods providers, larger corporations paying freelancers (e.g., app developers) and multi-level marketing.

B2C is the smallest segment across the cross-border segment, but it is expected to accelerate its growth because of globalized workforces and independent cross-border contractors. This segment represents US$128 billion with a growth rate of 7% over the past five years. It has moderate margins, which is a result of low margins enjoyed by corporates B2P, but partially offset by high margins in freelancing payments.

4. Consumer to consumer (C2C or P2P)P2P is mainly driven by remittances sent back to the home countries of expats and cross-border contractors who are temporarily working abroad. P2P represents US$600 billion with a growth rate of 5% over the last five years. The growth has slowed because of macroeconomic factors, such as lower oil prices affecting the

economy and tighter immigration controls. The transaction value of international remittances has been increasing over the past few years; however, the margin continues to decline because of increasing competition and the adoption of new technology. P2P uses a variety of payment methods with varying margins, with the more concentrated volumes of large merchants or concentrated intermediaries tending to have lower margins than more highly fragmented ones.

Besides traditional remittances, there are other categories, such as international students’ families sending money to pay tuition and living expenses, which is gaining momentum with the growth of international students. The other category that is also gaining traction is medical tourism.

The main concerns of businesses and consumers are inefficient processes, high and unclear costs, and limited tech infrastructure; SMEs are mainly underserved period.

Cross-border businesses are challenged with inefficient processes, lack of transparency and limited tech infrastructure.

Inefficient processes: The process of making cross-border payments is too cumbersome, unpredictable and it takes a long time to clear funds, which slows down the receipt of invoices and the opportunity to get early payment discounts. There are several steps involved in lengthy manual document verification. The solutions are fragmented with a number of touch points and interactions that slow down the process. This causes difficulties in tracking and reconciling end-to-end payments.

Lack of transparency: There is lack of transparency concerning the FX charges and high transaction costs which banks and other financial firms impose on cross-border transactions. While large corporations have been able to negotiate better terms and tend to be well-served by existing solutions, SMEs find themselves in a position where they are limited in finding the best solutions and have to deal with expensive terms for their cross-border transfers.



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Limited infrastructure capabilities: Banks have long been reliant on the payment infrastructure that has been established over the years and that lacks modern capabilities and efficiencies. There are limited security controls in transferring funds and no capability to receive a large number of payments at the same time. These systems lack standardization and automation in inter-bank and intra-bank networks as a result of largely independent development.

Emerging players have seized the opportunity to address these challenges and, leveraging technology capabilities, have developed solutions which are more convenient for customers.

New entrants are reshaping global payments by adopting new technologies, offering businesses and consumers convenient solutions, and by encroaching on the traditional field of banking. These players are putting pressure on margins and tapping into consumer needs. Increasing numbers of nonbank players are entering the cross-border payments market, targeting the low-value payment segments because of high fees and lower entry barriers.

The approach taken by banks for cross-border payments through legacy models and fee structures is losing relevance, making banks rethink their strategy and consider partnerships with nonbank players. On the other hand, this market is placing greater emphasis on transparency and compliance, including better disclosure of foreign exchange fees, compliance with anti money laundering (AML) laws and detailed transaction reporting.

Modernizing infrastructure by adopting new technologies and making changes to legacy systems will allow payment players to offer better solutions to businesses and consumers looking for faster payments, digitization and integral solutions.

ConclusionOverall, the cross-border market will continue to grow and remain one of the key focuses of financial services and payments providers. Over the coming years, this industry’s key trends will be the growing global transactions in e-commerce, increasing trade by SMEs in emerging markets, and emerging technologies disrupting payments offering better cross-border solutions and leaving behind

Emerging players are addressing these challenges and changing the competitive landscape.

legacy models. With regulations on KYC and AML tightening, it will be critical to monitor the cross-border flows to comply with regulations. This is what will drive the transparency agenda of many organizations even further forward.

Figure 11: New players in cross-border payments

Sachin Tandon

Margaret Weichert

Source: EY Horizon Scanner Database, 23 April 2017.

Emerging players Value proposition

B2B Payoneer, Direct Site, Earthport Cost, delivery methods (e-invoicing, pre-pay, post-pay), value-added services

C2B Amazon Payments, Payonneer, Alipay, PayPal, Transpay, BrainTree (PayPal), Stripe

Cost, seamless experience for customers, security in the transaction (lower risk of fraud)

P2P Transfer Wise, World Remit, Western Union (digital remittances), Xoom

Cost, omni-channels convenience (mobile, online), improved speed of the transaction

B2P Payoneer, ADP, Paypal Mass Pay, ZenPayroll, JustWorks, Brightwell Payments

Cost, cross-border tax management, value-added services



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Volume 16

M&A roundup

M&A activity and deal characteristics A total of 36 M&A transactions were announced in the first quarter of 2017. For Q1 2017, this represents a decrease of 42% relative to the 62 deals in Q1 2016. After a decrease in the number of deals in Q4 2016, driven by a reduction in the number of deals in North America and Europe, Q1 2017 has seen a reversal of this trend as Europe and North America deal numbers are recovering and deal activity in Asia is doubling. The financial terms of 15 transactions in Q1 2017 with a total volume of US$5 billion were disclosed. For Q1 2017, this represents a 6% increase over the Q1 2016 deal volume.8

The total disclosed deal value of Q1 2017 was primarily driven by the announced acquisition of Moneygram by Ant Financial or Euronet Worldwide (35% of disclosed volume). MoneyGram, a Dallas-based company, is the world’s second-largest money transfer company with a network of 2.4 billion bank and mobile accounts, and

Deal activity within the payments industry rallied in the first quarter of 2017 following a decline in the last quarter of 2016. In Q1 2017, a total of 36 deals were reported with a total disclosed value of US$5 billion. The proposed acquisition of MoneyGram by Ant Financial or Euronet Worldwide stands out because it involves the world’s second-largest money transfer company and could lead to a bidding war between a Chinese and an American payment company.

approximately 350,000 agent locations across more than 200 countries. The company also offers bill payments, money order and check-processing services. Ant Financial, the Chinese Financial Services and e-commerce giant, is expected to go into a bidding war over MoneyGram with Euronet Worldwide, a Kansas-based provider of electronic payment processing solutions. Ant Financial’s bid of US$880 million constituted a premium of 11.5% on Moneygram’s closing price on 25 January, valuing the company at an implied enterprise value of US$1.52 billion representing a 6.8x EBITDA multiple and a 0.9x revenue multiple. The proposed transaction would be consistent with Ant Financial’s current internationalization strategy following recent investments in Indian e-commerce player Paytm (US$680 million) and Thailand-based Ascend Money. Ant Financial is seeking international expansion given increased competition in its Chinese home market from WeChat payments, a subsidiary of Tencent.9

8 Sources: EY Innovalue analysis, Bloomberg, CapitalIQ, company websites, Mergermarket.

9 Sources: EY Innovalue analysis, Bloomberg (https://www.bloomberg.com/news/articles/ 2017-01-26/jack-ma-s-ant-financial-close-to-buying-moneygram-wsj-says, CapitalIQ, company websites (http://corporate.moneygram.com/), Economic Times of India (http://economictimes.indiatimes.com/industry/banking/finance/banking/alibaba- ant-financial-invest-about-680-million-in-paytm-up-stake-to-40/articleshow/49148651.cms).

Figure 14: Median enterprise value multiples Figure 15: Targets by region (in percentage)

Figure 12: Targets by segment (in percentage)

Figure 13: M&A market development

EBITDA multiple Revenue multiple

16x

14x

12x

10x

8x

6x

4x

2x

0 2013 2014 2015 2016 2017

3.7

14.5

2.8

14.7

3.5

13.1

2.3

10.6

1.1

8.0

Number of transactions Disclosed value (in US$ billion)

6.5

6.0

5.5

5.0

4.5

4.0

0.0

70

60

50

40

30

20

10

02016Q1

2016Q2

2016Q3

2016Q4

2017Q1

4.7

62

6.1

70

3.9

36

3.4

19

5.0

36

North America Europe Asia

Middle East, Africa (MEA) Oceania South America

2017 Q1333

22

33

36

2016 Q4

Payment Acceptance Devices + Software

Processing Issuing Alternative payment systems

Money transfer Acquiring Data analytics Couponing/Loyalty Other includes Security, ATM and Commerce

2017 Q18

3

8

17

22 2016 Q4

19

11

6

6

Sources: EY Innovalue, Capital IQ, Mergerstat M&A Database, company websites.

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On 14 March 2017, Euronet Worldwide submitted a proposal to acquire MoneyGram for US$1 billion at a premium of 28% over the closing price on 25 January and at an implied enterprise value of US$1.77 billion, representing an 8x EBITDA multiple and 1.1x revenue multiple. According to Euronet, accepting this offer would mean the two companies could close the deal quicker, given that there would be no need for the Committee on Foreign Investment in the US to review it. Such an acquisition would improve Euronet’s competitive positioning on the remittance market against digital start-ups. On 26 March, MoneyGram entered into an acceptable confidentiality agreement with Euronet to evaluate Euronet’s proposal. A deal with either Ant Financial or Euronet Wordlwide offers MoneyGram an opportunity since it could face significant pressure from the US President, Donald Trump, given his stance on immigration and trade.10

The median EBITDA multiple from 2016 to 2017 decreased from 10.6 to 8.0 times.

The median revenue multiple from 2016 to 2017 also decreased from 2.3 to 1.1 times. PayPal’s acquisition of TIO Networks for US$233 million corresponds to a multiple of 4.1 times the revenue or 28.8 times the EBITDA. In line with previous quarters, investors seem to be challenging the potential disruptive nature of target companies in the payments sector and are therefore reducing the transaction multiples of their offers. Furthermore, investors are offering more conservative valuations because of the uncertainty about the United Kingdom European Union membership referendum (Brexit). However, the deal landscape still shows a diverse range of valuations.11

In Q1 2017, geographically, 36% of the targets were based in North America, followed by 33% in Europe and 22% in Asia. Three deals stand out from a cross-border perspective: GrabTaxi, the Singapore- headquartered ride-hailing app, acquired the Indonesia-based e-commerce (online to offline) payment solution provider Kudo for US$100 million to expand its payments

In Q1 2017, the number of deals has recovered, especially driven by growth in Asia.

platform. In Germany, pan-European private equity investor AnaCap Financial acquired Heidelpay, an online payment gateway provider serving merchants in the DACH and Benelux regions. However, the most important transaction in the German payments market was the acquisition of a licenced NSP (network service provider) for the domestic debit scheme Girocard and the largest merchant acquirer, Concardis, by Advent International and Bain Capital.12

Andreas Habersetzer

Markus Massem

Apostolos Psaras

10 Sources: EY Innovalue analysis, Bloomberg (https://www.bloomberg.com/news/articles/2017-03-14/euronet-offers-to-buy-moneygram-in-offer-competing-with-ma-s-ant), CapitalIQ, company websites (http://ir.euronetworldwide.com/releasedetail.cfm?ReleaseID=1017276, http://ir.moneygram.com/releasedetail.cfm?ReleaseID=1018762).

11 Multiples analysis for Q1 2017 is based on a limited number of deals and includes pending transactions (MoneyGram).12 Sources: EY Innovalue analysis, Bloomberg, CapitalIQ, company websites, Mergermarket.

M&A roundup

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Funding activityOur EY analysis showed that in the first quarter of 2017, 40 companies raised US$753.2 million in investment, of which US$663.6 million was equity financing and US$89.6 million was debt financing. This represents a 33% increase on the 30 deals announced in the prior quarter and a 49% increase in terms of total financing value.

Throughout Q4 2016 and Q1 2017, investors sought opportunities in payments FinTechs across a range of maturity stages. However, in terms of funding value, the majority (79% equivalent to US$401.5 million) of the total funding value was invested in three companies: Payoneer, Stripe and FreeCharge; and in Q1 2017, the majority

(53% equivalent to US$400 million) was invested in Kakao Pay and Paytm. In contrast, investments in Q1 2017 have been more diversified, with investors seeking opportunities in payment FinTechs across a range of maturity stages.

Geographically, 45% of the total investment activity in Q1 2017 occurred in North and Central America followed by Europe and Asia. After a decrease in the number of deals concluded in the UK in the prior three quarters, Q1 2017 has seen a change in momentum with the number of financing rounds directed toward UK-based FinTechs rising.

Investment trends The last two quarters were characterized by strong investor interest in money

VC roundup

Figure 16: Market development

Number of investments Disclosed value (US$billion)

800

700

600

500

400

300

200

100

0

40

35

30

25

20

15

10

5

02016Q4 2017Q1

30

505 753

40

Figure 17: Investment by region (in percentage)

North and Central America Asia Europe

Middle East, Africa (MEA)

Oceania

2017 Q158

25

18

45

2016 Q4

Figure 18: Financing rounds (in percentage)

3

2016Q4 2017Q1

37

13

33

13

8

30

10

25

23

Other C A D/E B Venture seed

5

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transfer, and payment acceptance devices and software of FinTech companies. During Q1 2017, 60% of the total number of deals made within the payments sector was made in these two sub-sectors.13

In line with this trend, Payoneer raised the highest amount of investment across Q4 2016 and Q1 2017. This was through a series e-funding round of US$180 million led by TechnologyCrossover Ventures (TCV) and also participated in by existing investor Susquehanna Growth Equity. Payoneer has developed a global cross-border payment platform which enables businesses and global marketplaces to transfer money. It is headquartered in New York with a large research centre in Tel Aviv. The funding has come during a strong period of growth for the company, which has opened new offices in India, Japan and the Philippines, and partnered with one of Japan’s largest internet companies, Rakuten. According to the Financial Times, Payoneer’s revenues exceed US$100 million and are currently experiencing double-digit growth. Its client base boasts some of the largest internet marketplaces globally, including Amazon, Airbnb and Google. The recent financing

round will be used to enhance the company’s balance sheet in light of potential future acquisitions and to provide the payment platform with additional liquidity as it expands its geographical footprint and builds up local presence within existing markets.14

The inflow of VC into the cross-border payments sector was sustained into the first quarter of 2017 with fomerly Google Ventures (GV’s) investment in Currencycloud, a London-headquartered FinTech. GV, Alphabet’s (formerly Google) VC arm, made its first European FinTech investment of £20 million (approximately US$24 million) along with existing investors Anthemis, Notion Capital, Sapphire Ventures (investment arm of SAP group) and new investor Rakuten Fintech Fund. Currencycloud operates a cloud-based, white-label payment network facilitating real-time settlement in 212 countries and enables conversion of more than 30 currencies at wholesale exchange rates, via a network of local bank accounts and with access to more than 40 inter-bank clearing networks. Currencycloud’s network has an annual run-rate transaction

Money transfer and payment acceptance devices of FinTechs attracted investors’ interest.

volume of approximately US$10 billion per year across three million transactions. Currencycloud has positioned itself as the choice payment engine for the FinTech community and has a customer base of over 200 customers across 35 countries, including Klarna, Azimo, Seedrs, Revolut, Travelex, Standard Bank and Fidor. The funding will be used to drive the company’s growth and ongoing global expansion.15

Another sector which drew the interest of investors in Q4 2016 and Q1 2017 was payment acceptance devices and software, driven by an ongoing shift from consumer cash payments to electronic payment methods. San Francisco-headquartered company Stripe, which provides a set of unified APIs enabling businesses to manage and accept payments, raised a series D funding round of US$150 million in November 2016. The financing valued the company at US$9 billion pre-money and US$9.2 billion post-money, and came from existing investors General Catalyst and CapitalG (previously Google Capital). This latest investment substantially increased the company’s valuation from the prior funding round which saw the company

13 Source: EY analysis. 14 Source: EY analysis, Crunchbase, www.crnchbase.com, TechCrunch, Financial Times.15 Source: EY analysis, Crunchbase, www.crnchbase.com.

Figure 19: Sector focus

2016Q4

2017Q1

30

17

10

20

7

25

13

8

15

17 35

Alternative payment systems Money transfer Payment acceptance

Other Processing Issuing

5

VC roundup

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Volume 16

valued at US$4.9 billion. According to General Catalyst’s managing director, “The company’s valuation is a reflection of its size, scale, potential profitability and an unrestricted market size.” In addition to online payment acceptance, Stripe has developed a number of tools for data security, fraud prevention, accounting and billing. The latest financing aims to expand these capacities and fund international growth and future acquisitions.16

Continuing the trend of investment in the payment acceptance solutions and software segment, Swedish mobile point of sale (mPOS) provider iZettle raised a total of approximately US$63.5 million in January through the combination of a series D equity raise of approximately US$25.9 million and a debt raise of approximately US$47.6 million; valuing the company at US$500 million. Investors in the series D equity raise included American Express, Mastercard, Intel Capital and Index Ventures, with the debt financing coming from Victory Park Capital. The two funding rounds aim to help the company retain its position in a sub-sector that is undergoing a phase of consolidation, highlighted by the merger of two leading European start-ups, SumUp and Payleven, in Q2 2016. According to iZettle’s Founder and CEO, Jacob de Geer, the additional funds are going to be used to finance acquisitions and for expansion into further markets.17

Of particular interest have been the multiple investments conducted by Ant Financial, the Chinese online payment giant. Following the plan to expand its geographical reach, Ant Financial invested in Kakao Pay (South Korean mobile payment solution), Mynt (Philippines mobile micro-payment and loan service) and Paytm (Indian mobile commerce platform). The total disclosed financing value for the investments was US$400 million, US$200 million for Kakao Pay and US$200 million for Paytm via One97

Communications. Additionally, through a JV with Emtek, one of the largest media firms in Indonesia, Ant Financial has entered the Indonesian market and is aiming to create a local financial services presence. This high level of activity follows a momentum initiated a few quarters ago, in which the Asian giants, especially Ant Financial, started playing a significant role in both the VC and M&A space, seeking geographical and vertical expansion.18

In the coming months, we expect Asia to be a “hot” geography for interesting VC activity, the upward momentum of payment cross-border players to continue and the potential rise of investor activities around less prominent subsectors, such as security. Nevertheless, the quarter ahead will still be shaped by uncertainty with the implications of Brexit unclear for the UK and the European Union (EU) and the election of Donald Trump as president of the US raising questions about the future direction of banking regulation in the US and European pushback on “Basel IV.”

Asian giants are expanding their presence via investment activities.

Andreas Habersetzer

Markus Massem

Edoardo Cenci

VC roundup

16 Source: EY analysis, Crunchbase, www.crunchbase.com.17 Source: EY analysis, Crunchbase, www.crunchbase.com.18 Source: EY analysis, Crunchbase, Techcrunch, www.crunchbase.com.

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Volume 16

M&A Transaction overview

Q1 2017

Date announced

Target company Country TC industry Buyer (s)(country)

Country Transaction value (US$m)

1 4 January 2017 Avery Scott US Sells, leases, installs, processes, services and main-tains automated teller machines (ATM)

Payment Alliance International

US N/D (not disclosed)

2 4 January 2017 Sterling Payment Technologies

US Designs and develops electronic payment processing products for small, regional and national businesses

EVO Payments International

US N/D

3 9 January 2017 LogPay Transport Services

Germany Offers a fuel card for transport and logistic compa-nies to settle tolls and refuel as well as to book ferries

Volkswagen Finan-cial Services

Germany N/D

4 10 January 2017 Concardis Germany Offers debit and credit card payment transaction services in Germany, Switzerland, Austria and the Benelux

Advent Internatio-nal and Bain Capi-tal Private Equity

US N/D

5 13 January 2017 BCC Corporate Belgium Issues and provides services to Visa and Mastercard payment cards

Lufthansa AirPlus Servicekarten

Germany N/D

6 16 January 2017 PayCash Europe Luxembourg Operates a digital payment platform Daimler Financial Services

Germany N/D

7 16 January 2017 NewDay Group Holdings S.a r.l.

Luxembourg Issues credit cards and offers products and services to its customers within the credit and store card sec-tor in the UK

Nemean Bidco Channel Islands

1194

8 17 January 2017 North American Merchant Services

US Offers electronic payment processing solutions to customers in south-east US

Clarus Merchant Services

US N/D

9 18 January 2017 Heidelberger Payment

Germany Offers online payment services AnaCap Financial Partners

UK N/D

10 19 January 2017 flok US Offer an iOS and Android application that allows consumers to receive loyalty plans and rewards from specific vendors

Wix.com Israel N/D

11 24 January 2017 Digidentity Netherlands Provides next-generation technology which secures and verifies online identities

Solera Holdings US N/D

12 25 January 2017 United Payment Services

US Operates as a card-processing company Direct Connect Holdings

US N/D

13 25 January 2017 UniRush US Offers prepaid Visa debit cards in the US Green Dot US 161

14 26 January 2017 MoneyGram International

US Offers money transfer services. Ant Financial Ser-vices Group

China 1519

15 26 January 2017 Mepco Finance Corporation

US Offers payment plans for vehicle service contract providers in the US, enabling secure payment processing

Seabury Asset Management

US 34

16 31 January 2017 TechProcess Payment Services

India Provides payment processing solutions and services in India

Ingenico France N/D

17 1 February 2017 Hyundai Card South Korea Is involved in the credit card business in South Korea Affinity Equity Partners; AlpInvest Partners B.V.; GIC Pte. Ltd.; Hyundai Commercial

Hong Kong (China), Netherlands, Singapore, South Korea

258

18 1 February 2017 CentrumDirect India Provides foreign exchange services for investment, insurance and foreign exchange needs of high-net worth individuals, retail investors and corporate travelers

Jacob Ballas Capital India Private Limited, Investment Arm; New York Life Investment Management

India, US 167

19 6 February 2017 Billpay Germany Offers payment options for online retailers Klarna Sweden 75

20 6 February 2017 Deutsche Bank (DB), cards acquiring business

Italy Offers merchant-acquiring services in Germany CartaSi Italy 32

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Volume 16

Transaction overview

Q1 2017

Date announced

Target company Country TC industry Buyer (s)(country)

Country Transaction value (US$m)

21 13 March 2017 Singular Payments

US Offers payment processing services for US health-care and utilities industries

Payment Data Systems

US N/D

22 14 February 2017 Kudo Indonesia Develops e-commerce payment and commerce solutions for Indonesia

GrabTaxi Singapore 100

23 14 February 2017 TIO Networks Canada Processes bill payment transactions through an internet platform

PayPal US 233

24 14 February 2017 Avenues India India Offers internet payment processing solutions Infibeam India 298

25 15 February 2017 SCDM Germany GmbH, structured finance data and analytics business

Germany Offers a finance data and analytics platform Moody‘s Corporation

US N/D

26 17 February 2017 EFT Group Chile Offers electronic transaction processing services. EVERTEC Group US 42

27 20 February 2017 BtcBox Co Japan Operates Bitcoin exchange MBK Co Japan 12

28 23 February 2017 Paycorp Holdings Australia Designs and develops payment solutions for banks, corporates, and industry-specific vertical markets

MYOB Group Australia 36

29 27 February 2017 Skry US Develops an online platform for deriving real-time intelligence and risk assessment from blockchains and decentralized applications

Bloq US N/D

30 28 February 2017 SIX Group AG, commercial issuing business in Austria

Austria Issues credit and prepaid cards easybank Austria N/D

31 6 March 2017 Interswitch Limited

Nigeria Provides integrated digital payments and commerce services

TA Associates Management

US N/D

32 7 March 2017 Invapay UK Provides Invapay ePayments, a cloud-based payment solution that automates business to business pay-ments processes

Optal UK N/D

33 10 March 2017 CurrentC US Offers a payments technology solution JPMorgan Chase US N/D

34 10 March 2017 Fastacash Singapore Operates as a social and mobile payment platform to remit money

MyPay Myanmar N/D

35 13 March 2017 19pay China Operates as an electronic payment company Didi Chuxing China 622

36 14 March 2017 MoneyGram International

US Offers money transfer services Euronet Worldwide US 1771

37 16 March 2017 Acculynk US Offers payment processing and authentication software solutions for online and mobile commerce markets in the US, China, India, Puerto Rico and internationally

First Data Corporation

US N/D

M&A

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Volume 16

VC Transaction overview

Q1 2017

Date an nounced

Target Country Round Financial volume(US$m)

Total funding(US$m)

Lead investor

Segment Description

1 4 January 2017 Ripio US A 1.90 7.02 Huiyin Blockchain Venture

Payment acceptance devices and software

Ripio, formerly known as Bitpagos, is a bitcoin and digital payments company that helps merchants process international transactions with credit cards or bitcoins.

2 5 January 2017 PayNearMe US 20.51 91.71 Money transfer

PayNearMe offers a cloud-base, real-time money movement platform that serves consumers, businesses, government agencies and financial institutions.

3 10 January 2017 iZettle Sweden D 15.87 235.58 Payment acceptance devices and software

iZettle, a mobile payments company, offers small businesses with portable point-of-sale solutions and free sales overview tools.

4 10 January 2017 iZettle Sweden Debt 47.60 235.58 Victory Park Capital


iZettle, a mobile payments company, offers small businesses with portable point-of-sale solutions and free sales overview tools.

5 17 January 2017 SatoshiPay UK Venture 0.85 1.31 Blue Star Capital

Alternative payment systems

SatoshiPay offers a browser wallet for bitcoin nanopayments, allowing users of a customers website to unhide the premium content by paying a very little amount of money.

6 17 January 2017 Transfast Remittance

US Debt 40.00 40.00 Comvest Partners

Money transfer

Transfast Remittance operates as a money transfer company that offers money remittance services.

7 19 January 2017 iyzico Turkey C 13.00 22.00 Vostok Emerging Finance


iyzico offers an online payment gateway in Turkey.

8 21 January 2017 Zoona South Africa Venture 1.00 20.00 International Finance Corporation

Money transfer

Zoona is a mobile technology company developing products, such as money transfers, electronic voucher payments and agent payments.

9 25 January 2017 Kashing UK Seed 0.19 0.19 Startup Funding Club


Kashing provides an online payment gateway.

10 30 January 2017 BitPesa Kenya A 2.50 5.75 Processing BitPesa is an online payment platform that leverages blockchain settlement to significantly lower the cost and increase the speed of business payments to, from and within sub-Saharan Africa.

11 31 January 2017 Qvivr US A 5.00 6.76 Khosla Ventures

Issuing Qvivr’s first product is SWYP, an ultra-thin metal card and smartphone app that combines all of a user's credit, debit, gift and loyalty cards, creating the easiest way to pay and organize money.

12 31 January 2017 Latitude Technologies

New Zealand A 3.00 3.00 Jubilee Capital Management

Processing Latitude Technologies is an online payments firm that operates LatiPay, a solution that provides customers access to the five main Chinese e-wallets WeChat, Alipay, JDPay, BaiduPay, Tenpay and 19 main Chinese banks.

13 1 February 2017 BuyerQuest US Venture 4.00 16.00 Bridge Bank Payment acceptance devices and software

BuyerQuest is the cloud-based software company providing a platform which combines e-commerce with enterprise procure-to-pay.

Payments 24

Volume 16


Q1 2017

Date an nounced


Total funding(US$m)

Lead investor

Segment Description

14 8 February 2017 Exactuals US A 10.00 10.00 City National Payment acceptance devices and software

Exactuals is a SaaS-based platform that assists enterprises in paying non-employees and managing many forms of complex payments (residuals, royalties, marketplaces, etc.).

15 8 February 2017 Rippleshot US Venture 2.60 4.60 KDWC Security Rippleshot is a credit and debit card fraud detection.

16 8 February 2017 CreditStacks US N/D 0.15 0.15 500 Startups

Issuing CreditStacks provides credit cards for international employees in the US.

17 10 February 2017 Mint Payments

Australia N/D 4.60 4.60 TAAJ Corporation


Mint Payments is a payment gateway and mPOS provider.

18 14 February 2017 Moka Indonesia Venture 2.00 3,90 Mandiri Capital


Moka focuses on building mobile point-of-sale (mPOS) for restaurants and retail.

19 15 February 2017 Exactuals US B 10.60 20.60 Entertain-ment Partners (EP)

Money transfer

Exactuals is a SaaS-based platform that assists enterprises in paying non-employees and managing many forms of complex payments (residuals, royalties, marketplaces, etc.).

20 16 February 2017 TransNetwork Corporation

US N/D Nexxus Capital

Money transfer

TransNetwork operates in the B2B electronic domestic and cross-border processing and payments industry in the US, Mexico and Latin America.

21 20 February 2017 Kakao Pay South Korea N/D 200.00 Ant Financial Alternative payment systems

Kakao Pay allows over-counter payments, peer-to-peer transactions, bill payment, web banking and more, and it will move to offer financial services, such as loans and financing.

22 20 February 2017 Mynt Philippines N/D Ant Financial Alternative payment systems

Mynt offers micro-payment and mobile loan services.

23 22 February 2017 Bitbond Germany Venture 1.20 2.14 Sekip Can Gökalp

Other Bitbond provides a peer-to-peer bitcoin lending platform.

24 23 February 2017 Filament US Venture 9.48 16.85 Other Filament provides a secure communication platform for the Internet of things (IoT) that operates in distributed environments.

25 1 March 2017 Dimebox Netherlands A 5.39 5.39 BillPro Group


Dimebox develops a white-label payment gateway, analytics, risk and fraud management and billing platform for financial institutions.

26 1 March 2017 Yoco South Africa A 1.65 Quona Capital

Alternative payment systems

Yoco provides smartphone-based credit card processing services in South Africa via an mPOS device.

27 6 March 2017 Coiney Japan B 7.11 12.11 Payment acceptance devices and software

Coiney provides smartphone-based credit card processing services in Japan via an mPOS device.

28 6 March 2017 Wirex UK A 3.00 3.19 SBI Group Issuing Wirex is a hybrid personal banking platform combining blockchain technology and traditional finance.

29 6 March 2017 Cambridge Blockchain

US Debt 2.00 4.00 Partech Ventures

Security Cambridge Blockchain provides digital identity enterprise software for financial institutions based on the blockchain architecture.

VC

Payments 25

Volume 16


Q1 2017

Date an nounced


Total funding(US$m)

Lead investor

Segment Description

30 7 March 2017 First Global Data

Canada N/D 7.48 7.48 Money transfer

First Global Data provides mobile shopping, bill pay, stored value accounts, P2P, remittance and airtime top-up solutions to consumers and businesses

31 8 March 2017 Veem US B 24.00 44.25 National Australia Bank Ventures

Money transfer

Veem (formerly Align Commerce) is a next-ge-neration payment service provider (PSP) for global commerce and B2B payments utilizing blockchain.

32 8 March 2017 ID.me US B 19.00 39.55 FTV Capital Security ID.me is a digital identity network that empow-ers relying parties to grant access or benefits based on verified identity and attributes.

33 8 March 2017 Dream Payments

Canada A 10.00 17.50 Fair Ventures


Dream Payments offers a cloud-based pay-ment platform combined with a mobile point-of-sale device which allows merchants to ac-cept credit and debit cards, access rich analytics and reports, and provide digital receipts to customers.

34 8 March 2017 Paytm India N/D 200.00 Ant Financial Alternative payment systems

Paytm Payments Bank Limited operates a mo-bile and internet-based wallet. It allows users to send money to any bank account from their Paytm Payment Bank Wallet.

35 9 March 2017 Viva Republica

South Korea C 48.00 77.20 Goodwater Capital

Money transfer

Viva Republica provides a P2P money transfer service through a mobile application called “Toss”

36 9 March 2017 Currency-cloud

UK D 24.42 59.42 GV, formerly Google Ventures

Money transfer

Currencycloud provides technology-enabling businesses to offer cross-border payments and currency conversion services to their customers.

37 10 March 2017 Allied Payment Network

US D 0.01 1.46 Money transfer

Allied Payment Network offers online bill pay-ment services for financial institutions, including banks, credit unions and direct customers.

38 20 March 2017 Dosh US Seed 2.30 4.30 Couponing loyalty

Dosh is an app that automatically finds cash for consumers when they use their credit and de-bit cards while shopping, eating and traveling.

39 20 March 2017 Paynova Sweden N/D 0.83 0.83 Payment acceptance devices and software

Paynova offers an online payment solution en-abling acceptance of invoicing, card payments, bank transfers and digital wallets, and has expanded into providing consumer financing at the POS.

40 22 March 2017 Airpay India A 3.67 3.67 Kalaari Capital


Airpay Payment Services provides a payment gateway, which enables businesses to accept credit and debit card transactions across website, wapsite and mobile applications.

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#payments insights. opinions. Volume 16 - Ernst & Young will need to decide how to position themselves within this new environment. Continued on page 3 #payments insights. opinions