Editor's note

Issue 408  June 2021

Subscriber edition

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Payments fintech valuations soar to new heights

It has been quite a month in the sector, with the IPOs of Marqeta and dLocal just two notable highlights. As recently as last May, Marqeta raised $150m from an investor for a valuation of about $4.2bn. Thirteen months is a long time in payments fintech, and fast forward to early June 2021 and a successful IPO values the firm at over $16bn.

The writer has long since given up playing the cynical sceptic on such eye-watering valuations, given the resultant revenue or EBITDA multiples. Marqeta is a relative veteran compared to dLocal, given that it was founded as long ago as 2009. It did actually have a genuine claim to innovation with its use of API technology for a card-issuing system.

It was quick as a flash in ensuring that each and every PR calling on behalf of the firm stressed the usual buzzwords: simplifying the payments process, speed, agility, flexibility and scale of payments.

Marqeta hits $16bn valuation but remains in the red
But a $16bn valuation? No, I would not have forecast that, even as recently as a few months ago. Needless to say, Marqeta remains loss-making, but losses are declining. It lost a mere $12.8m in the first quarter compared with $14.5m in the year-ago quarter.

Not so at dLocal. It is profitable but also attracted a dizzying multiple, as reported in this issue. dLocal’s IPO valued the firm at $10bn. Again, a fairly eye-watering multiple when one considers it crossed into unicorn territory only nine months ago.

As this issue also reports, it has been a busy news month for long-awaited and overdue regulation of the wild west of crypto.

Credit: Shutterstock

Crypto regulation long overdue
The more astute of the central bank fraternity are waking up to the fact that if they are ever to roll out their own digital currencies, they will need to restrict access to existing crypto currencies.

Personally – and for the pusposes of full disclosure – I would sooner risk any spare cash on a random punt on a four-legged runner at Newmarket than touch any cryptocurrency with a barge pole, or even a stray tenner. But apparently there are 106 million users of crypto out there with a grand total of $1.7trn ‘invested’. Good luck to them. I will not be joining them.

For a brief period, it looked as if some sanity had broken out at UK retail banks, including Barclays, Monzo and Starling, when they decided to temporarily suspend payments toward crypto exchange platforms due to a growing number of suspicious transactions.

Sadly, at least one of the three banks relented quickly and withdrew the suspension. Given the appalling cost of attempting to monitor transactions in the sector – Action Fraud reports that £63m ($88.9m) was stolen through fake online investments, and approximately 44.7% of those scams were related to cryptocurrencies investments in recent years – there is a fees issue here. If the mainstream banks feel they must remain competitive by allowing customers to dabble in crypto, then at the very least they could increase their charges for such customers. More sensible retail customers who do not touch anything crypto are, arguably, subsidising the cost of the banks trying to keep some track of which transactions might be genuine and fraud-free and which are not.

Credit: Pay UK

Remembering Alastair Hanton, inventor of the direct debit
Since its birth in 1968, more than 140 billion transactions have been made by direct debit. In 2019 for example, 6.5 billion UK payments were made this way. A new record was set in November 2019, with 124 million transactions processed in a single day, while the value of transactions processed reached £58.8bn billion on one day alone in April 2017, another record.

Direct debits are used by nine in ten UK consumers to pay some or all of their regular bills. More than 4.5 billion direct debits were processed in 2019.

So, the humble direct debit is core to modern payments. The next time you check your direct debits, perhaps you might say a quiet 'thank you' or raise a glass to the memory of Alastair Hanton. He died on 26 May at the age of 94.

Amid many notable accomplishments – he was by all accounts an absolute gentleman – Hanton invented the direct debit. As a leading light at Unilever, his firm had the challenge of collecting variable payments from thousand of ice-cream sellers. His solution, rather than waiting for the cheque in the post, was to obtain authorisation to retrieve the money direct from their bank accounts.

Hanton enjoyed telling the story of the job that he had to persuade the bankers of the day to cooperate. But he won through thanks to a mix of charm and perseverance.

Douglas Blakey,
Editor