e-commerce boom will benefit payment startups the most

Little known before the pandemic, startups in the emerging digital payment industry are now worth a fortune as Covid-19 has pushed people to progressively embrace e-commerce.

Online shopping, contactless card readers, and mobile payments are not a brand new concept, but lockdowns and fears of contagion changed consumer behavior during the coronavirus crisis.

Marc-Henri Desportes, Deputy CEO of Worldline, a French payment, and transactions processing firm said, “2020 considerably accelerated the shift in consumer preferences to electronic payments and online shopping.”

A trio of startups — Stripe, SumUp, and Pledg — have gained from the change.

Founded in 2011 by two Irish brothers, Stripe propelled to the forefront of the industry after its valuation escalated to $95 billion in the last week, almost tripling since last year.

However, it still has a long way to catch up to the likes of Mastercard, valued above $300 billion.

The California-based payments processing firm reached its new valuation after acquiring $600 million in funding from investors last weekend.

On Tuesday, the British startup SumUp, which offers card payment terminals and online services, acquired 750 million euros in funding.

On the same day, the Paris-based startup Pledg, which specializes in installment payment services, acquired 80 million euros.

“We’ve done in one year a transformation which would in normal times take three or five years,” said Desportes.

  • PayPal and We Chat – According to a study by the consulting firm Accenture published last year, global payments revenue may increase by $500 billion over the upcoming years to reach $2 trillion in 2025.

The major names in the sector include US firms PayPal, Apple Pay, and Visa, and China’s WeChat Pay and Alipay.

Others on the rise include US firm Square and Dutch-based Adyen.

Stripe’s “recent valuation is maybe a signal that the accelerating forces of Covid are going to actually make it a lot easier for fintechs to sort of become more successful with greater market share,” said Matt Palframan, director of financial services research at survey and data firm YouGov.

“The really interesting thing … is to what extent do consumers go back to how they were living before Covid as we emerge from the crisis and to what extent some of this behavioral change is permanent,” he added.

That question is crucial for fintechs (finance technology companies) like Stripe, which aids online retailers with payments processing, said Palframan.

  • ‘Value up for grabs’ – It is also important for the other firms that provide accessory services like multifactor authentication, loyalty programs, and installment payments which are becoming more and more popular among retailers.

With low commissions for each transaction, volume becomes crucial to becoming profitable.

For instance, a payments processor like Worldline handles 10 billion transactions per year for retailers.

“There is value up for grabs, particularly from merchants who are already used to handing over several percentage points of transactions to the payment processor,” said Thomas Rocafull, a consultant at Sia Partners.

But retailers also stand to benefit.