Private capital’s role in shaping the future of payments and fintech

In recent years, private investments have become a driving force in the fintech and payments landscape, particularly within the merchant services sector. To find out more on the matter, we asked seven questions to David Núñez, Consultant at PaymentGenes.

Private investments have fluctuated over the past few years. Where do things stand now, and why is this capital so significant for fintech?

The global fintech market was valued at approximately $294 billion in 2023 and is projected to exceed $1 trillion by 2032. Private capital has been instrumental in this expansion, providing essential funding that enables fintech firms to innovate and scale their digital solutions, effectively navigating the rapidly evolving digital environment.

After a Covid-driven surge, private investments in fintech experienced a temporary decline as the market adjusted to new realities. However, we’ve now reached a point of stabilization, closer to pre-2019 levels. By the end of 2024, private investments across North America, Europe, and Israel are projected to reach approximately $16 billion year-to-date.

I’m optimistic about where we are headed, but I don’t think we’ll see the bullish growth of 2021 again anytime soon. Instead, we’re looking at a more sustainable pace of growth, which isn’t a bad thing – it reflects a focus on long-term fundamentals rather than inflated valuations. This stability is a strong signal of continued confidence in the fintech sector’s potential to drive innovation and adapt to changing market demands.

Private investments from venture capital and private equity remain critical for fintech companies, especially for Payment Service Providers (PSPs). They provide the resources needed to scale, innovate, and tackle the high upfront costs required for technology development, product innovation, and regulatory compliance.

In the merchant services sector, for example, private capital has been pivotal. PSPs and fintechs handle immense transaction volumes, requiring real-time, secure processing across global markets. This demands significant investment in both technological and regulatory infrastructure. Beyond funding, private investors also offer strategic insights, helping companies expand into new markets and address the rising demand for digital payment solutions.

How does private capital directly drive innovation in payments? Could you mention some benefits for both investors and the fintechs themselves?

Private capital fuels innovation by giving fintechs the resources to explore new technologies and optimize their offerings. AI-driven fraud detection, for instance, is one area where private capital has spurred rapid innovation, reducing fraud and associated costs for merchants. 

Adequate private funding also allows PSPs to improve foreign exchange rate efficiency, reduce processing times, and lower the costs of cross-border transactions, addressing a growing need for efficient global payment solutions​.

Key benefits for fintech companies:

• Enhanced Innovation: Private investments enable fintechs to allocate resources to cutting-edge technologies like AI-driven fraud detection and blockchain, fostering rapid advancements in their offerings.
• Scalability: With the right capital, PSPs and fintech firms can rapidly expand their operations to meet the growing demand for digital payment solutions in global markets.
• Improved Customer Experience: Investments allow for the creation of user-friendly, versatile platforms that drive transaction growth and enhance customer satisfaction and loyalty.
• Strategic Guidance: Beyond funding, private investors often provide invaluable expertise, helping fintechs optimize their operations and explore new market opportunities.

Key benefits for investors:

• High ROI Potential: Early-stage investments in fintech leaders like Stripe and Adyen have delivered exceptional returns, demonstrating the sector's potential.
• Portfolio Diversification: Fintech offers exposure to a high-growth, tech-driven industry, balancing risks with the opportunity for significant rewards.
• Strategic Influence: Investors can play an active role in guiding company strategy and building partnerships that enhance business value.
• Recurring Revenue Streams: Subscription and transaction-based models in fintech promise predictable, recurring income streams, providing financial stability to investors.
• Reputation Enhancement: Early backing of fintech giants boosts investor credibility, attracting further investment opportunities and partnerships.

From an investor’s perspective, what factors make a fintech company stand out?

It really depends on the stage of the company. For seed and early-stage investors, the focus is more on the big picture – the founding team, the size of the market opportunity, and the innovative potential of the product. At this stage, metrics like initial traction or early partnerships might be more important than profitability. Investors are looking for bold ideas that can scale, even if the business model is still being validated.

For later-stage investors, the priorities shift. By this point, they’re looking for proof of scalability and operational efficiency. Metrics like transaction volume growth, profitability, and the ability to navigate complex regulatory environments become much more critical. These investors want to see that the company is ready for sustained growth and can handle the demands of expansion.

That said, there are key metrics that investors evaluate at all stages to assess a company’s potential:

• Transaction Volume Growth: Demonstrates increasing demand for the company’s services and its ability to scale.
• Customer Acquisition Cost (CAC): Helps assess the efficiency of a company’s growth strategy and how cost-effectively they acquire new customers.
• Lifetime Value (LTV): Indicates long-term profitability, with a high LTV relative to CAC signaling sustainable growth and customer retention.

Understanding what matters most to investors at your specific stage can make all the difference when seeking funding.

For fintechs seeking private investment, what are the most important steps to take?

It all starts with clarity. Fintechs need to clearly articulate their value proposition and show how they’re addressing a real market need. Investors don’t just want a great idea; they want data-driven proof points, like user growth rates or successful partnerships, that demonstrate product-market fit.

Here are some practical tips:

Refine Your Pitch
Highlight how your product or service addresses a specific market need. Back your claims with proof points, like user growth or strategic partnerships.

Showcase Market Traction
Metrics like transaction volume growth or customer adoption rates can demonstrate strong interest and growth potential.

Leverage Strategic Partnerships
Seek out investors who can offer more than funding, as industry expertise and strategic guidance can be valuable.

Can you give us some examples of fintech companies that demonstrate the transformative power of private investments? What do they teach us about the potential for future fintechs?

Absolutely. Some of the most successful fintechs today highlight how strategic private investments can propel companies to incredible heights. They show the scalability and innovation possible when the right funding and guidance come together.

Three well-known examples in the industry are Stripe, Adyen, and Checkout.com. These companies not only leveraged private capital to expand their offerings and enter new markets but also set benchmarks for the future of fintech. These 3 cases show the far-reaching potential of private investment. For future fintechs, the lesson is clear: innovation, scalability, and operational excellence are the keys to attracting investment and achieving sustainable growth.

What trends do you think will define the future of private investments in fintech?
I see a few main trends shaping the future of investments in the merchant services sector, transforming how payment companies operate and innovate.

Consolidation for Comprehensive Offerings
The merchant services market is consolidating as larger PSPs and fintechs acquire niche players to expand service capabilities. These acquisitions enable providers to offer all-in-one solutions, which can include everything from fraud prevention to cross-border payments. This trend supports PSPs in offering robust solutions that meet global business needs.

Expansion of Omnichannel Payment Solutions
With consumer expectations for seamless payment experiences across online, mobile, and in-store channels, private investments are driving the development of omnichannel capabilities. These investments help merchants offer a unified experience and simplify inventory and sales management across multiple platforms​.

Real-Time and Cross-Border Transactions
As global commerce grows, private capital is enabling PSPs to develop solutions that support real-time, cross-border payments, optimizing currency exchange rates and reducing processing times. These capabilities are essential for businesses seeking to expand internationally and meet customer demand for faster, more efficient transactions​.

Commitment to ESG and Sustainability
With a rising focus on ESG, private capital is increasingly directed toward PSPs that incorporate sustainability into their operations, such as by offering carbon offset features or promoting financial inclusion. This commitment enhances the reputation of PSPs and aligns with broader ESG objectives, making them attractive to both consumers and investors focused on sustainable practices.

Finally, how does PaymentGenes support companies in navigating this dynamic landscape?

At PaymentGenes, we focus on helping our clients make the most of their opportunities. Whether it’s refining their strategies, optimizing operations, or identifying new growth paths, we provide the tools and insights they need to succeed.

For me, it’s incredibly rewarding to see our work directly impact a client’s growth and contribute to the evolution of the payments industry. We’re committed to shaping the future of fintech by empowering our clients to thrive in this exciting, fast-changing space.

The future of fintech holds endless possibilitie – driven by innovation, collaboration, and the courage to reshape the way the world moves forward together.