Payments used to be one of fintech’s hottest subsectors.
In 2021, fintech investors funnelled $10bn into European payments companies. But the sector was one of the hardest hit by the 2023 fintech funding malaise.
A combination of increasing compliance requirements, interest rate rises and a funding drought hit the sector hard. And annual VC funding in recent years has yet to crack the $2bn mark as some of its biggest players struggle to reverse losses.
But there are signs payments could bounce back. Buy now, pay later (BNPL) and payments giant Klarna is set to IPO this year, in what will likely be a litmus test for the sector’s readiness for public markets. There’s also investor excitement around more niche areas of the payments stack such as stablecoins and B2B payments as regulation slowly becomes clearer.
“There are so many aspects to payments that there will always be space for new entrants,” says CMS lawyer Charles Kerrigan who oversees the firm’s fintech practice.
The trouble with payments
VC interest in payments began to wane when rising interest rates and inflation reined in consumer spending. That was bad news for payments fintechs — its biggest players like Checkout.com and GoCardless make money by taking a cut from each transaction.
And unlike Europe’s neobanks, many of which reported profitability last year, payments startups typically can’t rely on tailwinds from interest income to increase toplines.
That’s left some questioning the disparity between some payment fintech revenues and valuations.
Take TrueLayer, which scored a $1bn valuation in 2021, as an example. The UK-based payments company, backed by Stripe, reported £12.4m in revenue for annual results covering 2023 in September last year — giving it a valuation 60 times higher than its revenue. Following the results, the fintech raised a $50m funding round that saw it lose its unicorn status.
It’s not true for every payments company, however. GoCardless, valued at $2.3bn in 2022, yesterday posted a £132m turnover for annual results covering up to the end of June 2024.
Impact of regulation
In recent years, the payments subsector has also had to adapt to a wave of new regulatory regimes.
“Most of the challenges existing for payment startups are not new,” says Balderton VC Greta Anderson. “For instance, eroding gross margins, or heavy dependency on regulation leaves them hampered by pushed-back timelines.”
In 2023, UK fintechs had to comply with consumer duty reforms that resulted in payment processors like Checkout.com having to consider how their services affect consumers. And in October last year, the Payment Services Regulator also rolled out regulation requiring all payment service providers (PSPs) to compensate authorised push payment fraud victims up to £85k within five days of the case.
Anderson says this could continue in 2025, citing the expansion of government-backed payment solutions like Wero.
Launched in late 2024 by the European Payment Initiative, Wero enables retail users in France, Germany and Belgium to send money in ten seconds by using open banking, a technology that shares financial data between third parties. It’s also set to expand to Luxembourg and the Netherlands in the next two years.
Anderson sees this as an “existential threat” to peer-to-peer payment apps like Lydia, a French peer-to-peer payments app founded in 2013 with 8m users.
“We can expect that Wero will be expanding into merchant payments in 2025, which will be disruptive for online A2A alternative payment methods (APMs) startups, and potentially in-person point of sale (POS) payments as well,” she says.
B2B and crypto
There are some bright spots, however, in startups playing in crypto and B2B verticals. Investors say Stripe’s $1bn acquisition of stablecoin startup Bridge gave legitimacy to stablecoins as a cheaper, more efficient payment method.
“I expect that we’ll see increasing usage of stablecoin rails powering payment fintechs, whether or not stablecoins are the central messaging of the business,” says Anderson.
CMS’ Kerrigan also sees huge potential for stablecoins in the payment space, describing them as “the first mainstream crypto use case.”
This year is so far proving that to be the case. One of the first acquisitions of 2025 was US crypto payments company MoonPay’s buyout of London-based crypto checkout startup Helio.
Both Kerrigan and Anderson also see life in the sector for newer entrants focused on the B2B segment.
Fintech industry watchers say payment fintechs with B2B business models are less sensitive to macroeconomic wobbles than B2C offerings, which rely on the fickle whims of everyday consumers. Investors also claim spending by consumers is dwarfed by institutional and B2B spend.
Last year, payments startups with a business-facing business model raised $1.5bn while consumer payments fintech raised $980m from VCs.
Anderson says: “There is still a lot of opportunity.”
Read the orginal article: https://sifted.eu/articles/payments-state-of-play-analysis/
