Fintech: Paytech SumUp raises $307MM at $8.6B, defying market gravity
Yet, Square and Toast make up 55% of the market share in the Point of Sale (POS) industry
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You’re the best, today’s agenda below.
PAYMENTS: SumUp Taps €285MM More In Growth Funding To Weather The Fintech Storm (link here)
LONG TAKE: Trusting Artificial Intelligence based on ZK Proofs, and the $10B fraud market (link here)
PODCAST CONVERSATION: How Animoca Brands built an empire at the intersection of Gaming and Finance, with Animoca Brands Chairman Yat Siu (link here)
CURATED UPDATES: Payments, Lending, Digital Investing
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Digital Investment & Banking Short Takes
PAYMENTS: SumUp Taps €285MM More In Growth Funding To Weather The Fintech Storm (link here)
SumUp, a payments processing firm that rivals Square, has defied European fintech funding trends by raising $307MM at a $8.6B valuation. Notably, this valuation surpasses last year's figure of $8.5B, marked at the conclusion of a $620MM raise in June 2022. The past years have been a tale of both impressive valuation growth and challenges for SumUp. Although originally targeting a valuation of up to $22B in early 2022, the company ultimately settled for $8.5B, with the latest capital injection marginally elevating the post-money figure.
While the first half of 2023 witnessed a significant downturn in the fintech sector, with funding in EMEA plummeting by 50%, things have been more promising for fintechs recently. See SumUp's recent raise, Klarna's profitability, Affirm's stock surging by almost 200% in the past six months, and Wise's net income skyrocketing by 280% in the last quarter.
The company offers a full-featured point-of-sale (POS) solutions and devices for retail shops and restaurants. Its flagship product is a card reader, used by 4MM+ merchants. Operating in 36 markets, including a recent expansion into Australia, SumUp charges a 1.69% transaction fee for its card readers. To cater to small merchants, it partnered with VPC for cash advances in the UK, introduced Tap-to-Pay for iPhone users in the UK, France, and the Netherlands, and launched SumUp One — a subscription plan that bundles SumUp’s features for £29 per month and a reduced transaction fee of 0.99%.
In the past, SumUp relied heavily on marketing expenditures to fuel growth, aiming to recoup investments from new clients within 12 months. However, since 2021 the company has transitioned toward inorganic growth through mergers and acquisitions (M&A), such as the $317MM acquisition of payments and marketing platform Fivestars. The shift towards acquisitions was likely due to the 34% drop in 2021 revenue from 2020, and highlights flatter organic growth for a maturing company.
According to Pitchbook, the company generated $160MM in revenue, a revenue figure below 2020 levels. Moreover, the company's income after tax for 2022 stands at just $1.5MM, and profit margins barely surpass 0.5%. Granted, we do not have access to SumUp's latest financials, but it is challenging to justify an $8.5B price tag — a 50x multiple. Given the quality of the follow-on investors, we think much of the financial protections must have been built into the legal structure of the round (e.g., participating preferred equity).
If we compare SumUp with Block’s Square, Square's fees are slightly higher at 1.75%, but they offer free POS software. In 2022, Square also had 4MM merchants using the service, but it conducted 4 billion sales transactions totaling $186.5B in Gross Payment Volume (GPV). This translated to $6.7B in revenue and a gross profit of $3B—a stark contrast to SumUp's $160MM in annual revenue.
SumUp is operating in a highly fragmented, difficult-to-penetrate, and fiercely competitive market. While its initial growth was impressive indeed, we take pause at its apparent reliance on acquisitions to boost revenue growth. While we anticipate SumUp's continued growth via the inorganic route, it must operate more efficiently to prove its ability to turn market share into healthy economics. Furthermore, it must establish a stronger presence in markets like Brazil, before it can effectively start eating away at Square’s dominant position, or other competitors like Toast and Clover.
👑 Related Coverage 👑
Blueprint Deep Dive
Long Take: Trusting Artificial Intelligence based on ZK Proofs, and the $10B fraud market (link here)
Trust in the financial sector, as exemplified by Bridgewater Associates' claims about its investment processes, is a critical yet often elusive asset. Despite Bridgewater being the largest hedge fund, skepticism surrounds its performance and strategies, highlighting the complex nature of trust in finance. In payments, trust is frequently compromised, evident in the annual $10-15 billion losses due to card fraud.
Zero Knowledge Proofs (ZKPs) are emerging as pivotal tools in reinforcing trust, with ZKPs ensuring transaction authenticity without revealing sensitive details. ZKML solutions, in particular, are instrumental in verifying the outputs of AI models, enhancing the reliability and integrity of financial systems.
🎙️ Podcast Conversation: How Animoca Brands built an empire at the intersection of Gaming and Finance, with Animoca Brands Chairman Yat Siu (link here)
In this conversation, we chat with Yat Siu - co-founder and executive chairman of Animoca Brands, a global leader in blockchain and gaming that is working to provide property rights for virtual assets via NFTs and related technologies.
Yat began his career at Atari Germany in 1990. In 1995 he established Hong Kong Cybercity/Freenation, the first free web page and email provider in Asia. In 1998 he set up Outblaze, an award-winning pioneer of multilingual white label web services. In 2009, he sold Outblaze’s messaging unit to IBM, and pivoted Outblaze to become an incubator of projects and companies to develop digital entertainment services and products. One of those incubated projects is Animoca Brands, created in 2014.
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Curated Updates
Here are the rest of the updates hitting our radar.
Paytech
⭐ Mexican SME Payments Platform Kapital Raises $40MM Series B - Fintech Futures
Elon Musk’s X Granted Payment Processing License In 13 US States - And Counting - Finextra
Visa To Acquire A Majority Interest In Prosa To Accelerate Digital Payments Adoption in Mexico - FF News
Neobanks
⭐ Bank Clients Back €15MM Investment In Meniga - Finextra
Neobank Dave’s New Chatbot Achieves 89% Resolution Rate, CEO says - Banking Dive
Lending
⭐ Canapi Ventures Launches $750MM Fund To Back US Fintechs - Altfi
Google Adds BNPL Options To Mobile Wallet - Finextra
Splitit Delists From ASX As Motive Partners Snaps Up Controlling Stake - Fintech Futures
Digital Investing
⭐ Addepar Hits $2T Of RIA assets And $5T Of 'Overseen' Assets But Still Burns Through $100MM Annually For R&D, With An Eye To $250T Of Global Consumer Assets - RIABiz
Apex Fintech Solutions Files Draft Statement For IPO With US SEC - Fintech Futures
Wealthtech Prosper Hits £1MM Crowdfund Mark - Finextra
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