The payments category has seen a revival of interest – what’s driving this?
Jason Gurandiano: Payments were the first subvertical within fintech to come under pressure from AI disruption, though it was viewed as one of the most resilient.
We've seen activity pick up meaningfully over the last three months in particular, including our involvement in the sale of Moneris and Nuvei’s acquisition of Payoneer.
Matt Thomas: Payments has historically been a fragmented ecosystem. Now it’s moving from country-specific players to become more global. Companies are increasingly owning whole steps of the value chain.
The value of publicly-traded payments companies came under pressure before SaaSpocalypse. I think we’re now going to see companies come out of the public markets, as strategics and private equity recognize them as compelling investment opportunities.
Asif Ahsan: In 2020 to 2023, payments players traded at multiples several times more than they’ve seen recently. If you look their projected cash flows, there’s a meaningful disconnect, implying a high discount rate.
Investors and buyers are seeing a lot of value in payments companies, given their embedded nature and the consumption-based nature of their revenue streams. We see this as an area of likely continued M&A activity over the next 12 months.
“Investors and buyers are seeing a lot of value in payments companies. We see this as an area of likely continued M&A activity over the next 12 months.”
Asif Ahsan, Managing Director, Technology M&A
How are agentic commerce and stablecoin affecting the payments ecosystem?
Ahsan: Agentic commerce will likely shift a large percentage of commerce away from human-instigated to agent-initiated transactions. We’ve already seen individual agents being able to make purchasing decisions within defined frameworks, for example a $500 limit.
There is a need to create trust and ensure that you don’t have agents going rogue. Visa has agreed to buy BioCatch, a provider of behavioral-first, multi-signal fraud intelligence. We’ll see more convergence on fraud, identity, and payments.
Gurandiano: One of the critical elements of the Nuvei-Payoneer transaction was the marriage of legacy payments to next-gen payments, and the ability to leverage the growing stablecoin infrastructure being built by Payoneer.
Thomas: Stablecoin is being institutionalized. Matched up with digital wallets, that could become a gamechanger, where consumers keep their assets and currencies, rather than dropping them into a banking account.
Incumbents in the payments ecosystem see this as an area of M&A priority, as they look to ensure they remain highly relevant in how commerce is transacted globally.
“Stablecoin is being institutionalized. Matched up with digital wallets, that could become a gamechanger, where consumers keep their assets and currencies, rather than dropping them into a banking account.”
Matt Thomas, Managing Director, Technology Investment Banking
How is AI affecting information services?
Ahsan: While proprietary data is probably the number one element in AI resilience, companies are also looking for a mix of hardware and software models. We've seen a lot of M&A where strategics have bought companies with a hardware component, creating a stronger moat against AI.
Thomas: The important question you need to ask with any asset is what they’re sitting on that's truly proprietary, versus repackaging of data available through other sources.
Which subverticals of fintech look most promising?
Ahsan: I’m generally bullish on financial software. But I think we’ll see some winners and losers with consolidation. Vendors are looking to have fewer point solutions.
Thomas: I’m bullish on information assets owned by some of the players in market structure. It’s a volatile trading environment, and that’s always a net positive for their underlying exchange business.
Ahsan: I’m bullish on digital assets in the long run, for two reasons. One is that inflation is likely here to stay. Also, if you look at the arc of some of these companies over the last two decades, there has been a strong maturation, and I see that continuing.
Thomas: Digital trading platforms are benefiting from consumers increasingly wanting to handle their own wealth management. Retail investor involvement in some of the massive IPOs has been a boom for all those companies.
Digital banks have been broadening their offerings to the consumer to be more than just a bank account or a card, so the value proposition continues to improve, but I've got questions about their ability to derive meaningful profitability on that part of the business.
Ahsan: Overall, the innovation we’ve seen in fintech is only going to accelerate, and AI is a real tailwind. Consumer health is going to continue to drive more embedded finance solutions. It does feel like there's a lot to be excited about over the next several years.
