Deal Focus: Visa Acquires Fundamo

June 9, 2011

Visa trekked into Africa today when it announced it’s acquisition of Fundamo, an Enterprise Mobile Financial Services platform for mobile network operators and financial institutions in developing economies. The acquisition comes at a time when Visa is attempting to grow its technology-enabled payments business — the company recently announced a new global strategy, aiming to provide the next generation of payments solutions for consumers via card, computer or mobile device. Cape Town, South Africa-based Fundamo, which Visa purchased for approximately $110 million, boosts Visa’s position in the tech-enabled payments area and expands its consumer base abroad. The acquisition also gives Fundamo users, which currently total more than five million, a higher level of security when making mobile payments through Visa’s extensive network.

As the U.S. market for credit and debit cards continues to be heavily saturated, payment processors, including Visa and rival Mastercard, have increasingly been seeking growth in new areas, including mobile and the Internet. Last month, Google and Mastercard announced Google Wallet, a pay-by-phone system designed to work as an app on Android phones using MasterCard’s “PayPass” technology, which lets shoppers tap cards for payment. While mobile payment technology has had considerable success in countries such as Japan, U.S. consumers have been slow to jump on the mobile payment band wagon. In 2010, Forrester research showed that 18% of U.S. online adults expressed interest in mobile payments, but less than 6% had ever actually used any type of mobile payment.

Mass-market adoption of mobile payments in the U.S. is most likely still years away, but we are getting there. The number of merchants accepting mobile payments — and more importantly, the availability of mobile-payment equipped devices — is finally starting to expand, though it’s still in its infancy. Innovation and strategic partnerships from mobile operators, alternative payment providers, and online companies have the potential to disrupt the existing payment systems. Companies such as Boku and Zong (which both raised significant venture funding last year) and other smaller players are leading the drive towards a new standard for payments, and are most likely in the cross-hairs of hungry acquirers. We expect the focus on mobile payments, both domestically and abroad, will only continue to ignite as we head into 2H 2011 and 2012.

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Posted by Signal Hill

Deal Focus: eBay Enters Charity Market with MissionFish Acquisition

May 5, 2011

eBay recently acquired non-profit fundraising tool MissionFish. The company, which has been powering eBay’s GivingWorks program for the past eight years, has raised more than $250 million for U.S. and U.K. non-profits and eBay plans to create a separate nonprofit organization that will eventually be directly responsible for the collection and distribution of funds, using MissionFish’s technology.

There have been few acquisitions in the non-profit technology market; Renaissance Administration’s acquisition of BlackBaud’s donor-advised fund platform is the only other transaction Signal Hill has tracked over the past year. Yet there are a growing number of competitors emerging in the $300 billion charity space, especially due to the growth of social networks.  These companies span the range of charitable giving and technology, including crowd-sourced fundraising (Crowdrise), micro-lending (Kiva), mobile fundraising (Nadanu), online fundraising software (Fundly) and even provide the ability to donate every time you make a purchase on your credit card (Swipegood.com). Philanthropy-enabling platform give2gether even takes giving one step further, using 10 years of research in its analytic metrics to help improve the probability that non-profits raise more funds.

These companies can be a difficult target for M&A, however, as non-profits provide little up-side for acquirers aside from the “goodness” factor. Still, as social responsibility becomes a major focal point for corporations and consumers, venture firms see opportunity and are investing. Social fundraising platform Fundly recently closed a $2 million seed funding round led by a group of Silicon Valley investors.

Ultimately, we believe these charity-focused companies have the potential to be picked up by larger charitable networks, financial institutions, or even major credit card providers such as Visa or Mastercard. But don’t expect these to be blockbuster deals – chances are any acquisitions would only occur at modest valuations.

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Posted by Signal Hill

CyberSource Deal Provides Clues To e-Payment Competition Fears

April 29, 2010

Visa made a splash in the tech circle last week when it announced it was acquiring e-payment, risk management and payment security solutions provider CyberSource for $2 billion. The credit card giant didn’t bat an eye at paying nearly 7x trailing revenue and over a 33% premium ($26 per share) on CyberSource’s previous day stock price. We have written quite a bit about electronic and mobile payments and there is no doubt the sector is extremely hot right now.

There are a number of reasons why Visa has decided to enter the e-payment realm with its acquisition of CyberSource. These reasons also serve as clues to where the future of payment technology is heading.

  1. The acquisition will allow Visa to gain a foothold in the increasingly competitive electronic and mobile payments market. As the payment market continues to expand almost daily, Visa is putting itself in prime position to utilize its already-established brand reputation. There are a huge number of electronic and mobile payment services popping up, many of them start-ups, that do not have the brand trustworthiness and recognition that Visa has built over the years. Probably the largest competitor in the market currently, eBay’s PayPal significantly expanded its global presence in 2009, processing more than $20 billion in transactions in Q4, and continues to grow through supporting a variety of currencies and offering developers use of its API. On the other end, start-ups — specifically mobile startups — are continuing to rake in venture capital investments, such as Matrix Partner’s recent $15 million investment in Zong, and Boku’s $25 million round led by DAG Ventures in January, and are proving to be another source of competition.
  2. CyberSource’s risk management and payment security services will boost Visa’s ability to detect fraud and points of compromise where card users’ information could potentially be stolen. Visa absolutely has a focus on security with this acquisition, specifically with CyberSource’s secure payment data hosting solutions, a growing need for merchants. The acquisition provides both companies with the resources to help merchants increase revenue through global growth while minimizing monetary loss from fraud. Customer information security is extremely important, especially when it comes to credit card and banking information. Although in a somewhat different vein, Blippy, a site for socially sharing credit card transactions, accidentally allowed users’ credit card information to slip into Google search results, which resulted in huge media backlash and a major overhaul of the company’s security practices. This shows the challenges that startups, which promise users privacy and security, can still make mistakes, and that protecting users information remains extremely important.
  3. The last, and some might argue, most important point is that the acquisition of CyberSource could be used to help fend off future potential competition from the increasingly influential mobile-powerhouse Apple. Recent news that the iPhone giant has applied for patents for near-field communication (NFC) chips for future models of the iPhone brings with it the prospect that Apple is about to change the landscape for another industry — banking. A recent American Banker article suggested that Apple could eventually forgo the need of banks all together and route users payments through its iTunes payment system. With the addition of NFC, iPhones could become mobile wallets, store payment card accounts and function as contactless credit or debit cards, which could be trouble for traditional banks and credit card companies. Apple already has agreements with companies such as Starbucks, where customers can order from and use their iPhones to pay (although the payment is linked to a prepaid card). Still, the options are increasingly endless.

The industry is still a few years away from mobile payments going truly mainstream, but there is certainly plenty of steam pushing this new technology forward. The U.N. estimated that 5 billion people worldwide will use cell phones this year. As smartphones become more popular and less costly, their adoption rate is set to rise as well, allowing for increased availability of mobile and e-payment options. There is no doubt payment technology will continue to grow in popularity — the question is: who will be the one to start the revolution?

1 Comment | Financial Technology, Internet, IT Security, Mobile | Tagged: , , , , , | Permalink
Posted by Signal Hill

FinTech Market Finds Higher Valuations, IPOs and VC Investors

April 19, 2010

The market for Financial Technology M&A is finally showing broad signs of a comeback. Investments in FinTech businesses by venture capital firms have been steady, M&A valuations are increasing to promising levels, and there have been two significant IPO filings for FinTech companies over the past two months. With IT spending by U.S. and Canadian banks expected to reach $50.9 billion this year, the industry backdrop remains healthy for FinTech providers to grow over the next three quarters and into 2011.

Although the actual number of FinTech deals tracked by Updata in Q1 decreased slightly compared to Q4 [see our Q1 2010 IT M&A Review], median deal size and median revenue multiples jumped to their highest levels in two years. Two of the largest deals over the last three months for the entire IT market were in the FinTech sector: PNC Global Investment Servicing’s acquisition by BNY Mellon for $2.3 billion and RiskMetrics Group’s acquisition by MSCI for $1.5 billion. Both transactions boasted relatively healthy revenue multiples: 2.9x trailing revenue for the BNY acquisition of PNC’s unit and 5.1x trailing revenue for MSCI’s purchase of publicly-held RiskMetrics.

Venture capital firms are continuing to step up their interest in the FinTech sector, including recent investments in companies such as Derivix, a New York-based provider of pricing and analytics solutions to the options trading market, by J.P. Morgan and S.A.C. Venture Investments, as well as The Receivables Exchange, an online marketplace for real-time trading of accounts receivable, which received $17 million in Series C financing led by Bain Capital Ventures.

FinTech companies are also making their way back into the public equities market after the 2009 drought. SS&C Technologies, a provider of financial management software, raised $161 million in its March 31 IPO, pricing its shares at the high end of the range at $15 each. Envestnet, a Chicago-based provider of online investment solutions and services to financial advisors, also recently filed for a $100 million IPO and has raised over $40 million in VC funding from firms including GRP Partners.

We continue to believe the emerging mobile and Web payment sub-sector will be an important growth engine for the future FinTech marketplace as startups begin providing new and innovative technologies. This sub-sector could prove to be enticing for traditional banks looking to tackle the front and back-end of mobile payments without spending on their own R&D. VC’s are already funneling money into the sector, as evidenced by the recent $2.5 million investment in Transactis, a Charlotte, N.C.-based provider of electronic bill presentation and payment solutions, led by Metamorphic Ventures. There have also been a handful of M&A transactions in the space, including Deustche Telecom’s recent purchase of ClickandBuy (Firstgate), a Switzerland-based provider of internet payment services, and Welsh, Carson, Anderson & Stowe’s recent agreement to acquire a majority stake in GlobalCollect, an Amsterdam-based provider of local e-payment solutions for international customer not-present (CNP) channels. [Update: Two more e-Payment deals have since been announced: Visa's $2 billion purchase of CyberSource, as well as the much smaller acquisition of Jware Technologies by Brussels-based Clear2Pay NV, a provider of payment solutions for financial institutions.]

We expect to see continued revival of M&A activity and new investment in the FinTech sector, especially as payment technology continues to evolve and larger tech firms and financial buyers reopen their wallets. Already in the first two weeks of Q2, Silver Lake Partners has bought a 60% stake in Mercury Payment Systems, which provides integrated transaction processing, and CRIF Corporation purchased APPRO, Equifax’s enabling technologies unit which provides loan origination systems for financial institutions, for over $72 million. The fact that M&A valuations are increasing is a sign that the market in its entirety is picking up steam and FinTech is bound to start a comeback.

1 Comment | Financial Technology | Tagged: , , , | Permalink
Posted by Signal Hill

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