Why we invested in Rapyd back in 2018 and doubled down on it today
By Mike Lobanov
The COVID-19 crisis made a huge impact on global payments and significantly accelerated the pace of change in the $95tn payment industry [link]. In light of this, investors’ interest in startups offering innovative solutions in this area has grown considerably which led to huge investment rounds raised by these companies last year. Among these startups was our portfolio company Rapyd which recently closed its Series D round of $300m at a valuation of $2.5bn [link]. It took them only a few months to close their Series E.
Being one of the early investors in the company, having consecutively invested in every round starting from Series A and leading this Series E, we would like to share our investment thesis for Rapyd.
Stage 1 — A one-of-a-kind global payment platform enabling pay-ins and payouts in cash
When we first met the company in late 2016, it was in the midst of raising its Seed round offering a B2C eWallet that would allow consumers to deposit and withdraw cash through ATMs in any country without a bank account at low fees. The company back then was called “CashDash”.
Despite the fact that we were very impressed with the founding team, we could not make ourselves comfortable with the idea of a B2C business (we very much prefer B2B plays in fintech) and, unfortunately, passed. Fortunately for us, we cured our mistake and invested in CashDash’s Series A.
From the very first meeting with Arik there was something I could sense in the air that he is on track to build something big. We kept in touch and met a few times after CashDash closed their Series seed. By the time the company started raising again in early 2018, CashDash had already pivoted to B2B infrastructure and developed a platform providing merchants with the opportunity to get paid for their goods in cash through a vast ATM network globally or via local e-wallets. CashDash platform was the first solution of this kind which fit the market perfectly: in 2017, over 1.7bn adults globally didn’t have bank accounts, making cash the primary method of payment for most of them [link]. Thus, cash pay-ins and payout capabilities provided by CashDash platform could open up tremendous opportunities for global merchants that only accepted credit cards.
Below are just a few use cases for the technology that already existed back in late 2017:
- E-commerce merchants — allowing customers without bank accounts to pay in cash: a customer makes an order, gets a code, comes to the ATM, puts a code through the pinpad of the ATM (thus, identifies himself) and deposits money through the ATM in order to make a payment. Check the video how it works.
- Ride-hailing businesses — charging commission from drivers that are paid in cash: drivers accepting cash from customers can pay commission to the ride-hailing service via depositing money through ATM.
- Money remittance — allowing customers without bank accounts to make cross-border transfers in cash.
- Neobanks / eWallet providers — allowing customers to top-up their accounts and make withdrawals via ATMs globally.
Being impressed by the team and the traction of CashDash, we decided to pull the trigger and lead the Series A round at the “insanely high” valuation of $30m. It would be fair to say I did not understand back then the full potential of what this technology can be actually used for and did not pay attention to e-wallets that the founder of CashDash, Arik Shtilman, constantly mentioned during our meetings. Cash use case seemed big enough to me and I could hardly imagine anyone uses an e-wallet. Quite soon I figured out I only saw the top of the iceberg.
Stage 2 — leading payment platform enabling pay-ins and payouts in all payment methods beyond VISA/Mastercard
Within the next year and a half, the company exploded in terms of growth and quickly raised two consecutive rounds of funding ($40m Series B [link] was led by General Catalyst and Stripe; $100m Series C [link] was led by Oak HC/FT). The fresh capital allowed the company not only to reach a unicorn status but also to quickly scale its cash payment platform into a much more comprehensive solution under a new name — “Rapyd”. Thus, by the end of 2019, apart from ATMs providers the company had partnered with hundreds of payment providers (banks, eWallets, local debit card schemes) across different regions, thus, managed to significantly expand payment collection and disbursement capabilities of its platform to everything beyond Visa/Mastercard.
I clearly remember the beginning of 2019 — Rapyd’s Series B round is almost closed and all the allocations are assigned. It is Paris Fintech Forum and there is a panel on payments — 6 speakers including Arik. The moderator asks everyone to quickly introduce themselves. 5 speakers briefly touch on their business and each one of them says “we are a principal member of Visa and Mastercard” among other things. Arik goes last and says “We are doing everything but Visa and Mastercard”. There is a moment of silence in the audience and everyone turns heads listening.
Throughout the 3 years that we are invested in Rapyd, I constantly explain to people (primarily from the US and Europe) the value of Rapyd’s product. Indeed, pretty much every person I speak to has a wallet full of credit cards (and so am I). However, shocking but true: 62% of e-commerce payments and 35% of POS (!) payments are done with APMs (Alternative Payment Methods — any payment method other than cash or cards linked to the global card brand networks such as VISA/Mastercard), and this share is expected to grow to 66% and 43% respectively in 2024 [link].
The growing adoption of APMs is driven by emerging markets where a large share of the population still remains unbanked (so people pay with cash or local e-wallets such as Paytm in India, or M-Pesa in Kenya) or use locally issued debit cards which are not accepted online in the majority of cross-border transactions (Verve in Africa, RuPay in India, MIR in Russia, etc). Thus, in China 80% of e-commerce transactions are done with APMs, in India — 62%, in Indonesia — 61%, and there are plenty of other examples [link]. And the reason why APMs are so widespread is simple — these means of payment are usually cheaper, quicker and more convenient than credit cards.
I often hear “true, but as soon as the level of financial well-being increases in APAC or LATAM, these people will switch to cards”. I very much doubt so. These people rely on APMs not because they are “developing” rather than “developed”. If you think about it, it is way more convenient selling watermelons at the farmers market with a QR code rather than with Square machine. And it is also more secure — while paying with your phone, you are way more likely to use second factor of authentication. The history does not repeat itself, but it rhymes — such a great saying by Mark Twain. Great Britain, once the largest empire on planet Earth made a bet on gas and others made the bet on electricity. There was a period of time when some people thought those who are betting on electricity are less “developed”, but time put everything to order. The same thing is happening now in payments.
Stage 3 — leading fintech-as-a-service platform providing full stack of payment capabilities
The goal of Rapyd is to build a platform that will be able to provide customers of any size with the full stack of payment capabilities via a single API. In other words, the company aims to become AWS for financial services.
Firstly, it added traditional card acquiring capabilities (both POS and online) to the platform by acquiring Korta, a European-based payment service provider based in Reykjavik, Iceland.
Secondly, Rapyd made its product available to a wider range of customers through a long-awaited “self-service onboarding” functionality allowing small and mid-size merchants to onboard themselves to the platform.
Thirdly, the company has developed its white-label solution — it now allows customers to build their own PayPal-like eWallet ecosystem [link], and issue branded physical and virtual cards on top of these eWallets. This is the market that is expected to grow from the current $50 trillion to almost $80 trillion in transaction volumes by 2030 [link].
Stage 4 — even beyond AWS for fintech
When people ask me what is my thesis for Rapyd in the next 5 to 10 years (and this is just my take as a private individual) I always tell people that I deeply believe that three things are inevitable:
1. Every government will eventually come to Central Bank Issued Digital Currencies. It is just logical to eventually eliminate cash and to provide a government-controlled e-wallet to every citizen. It will help control money supply better, make things more transparent and eliminate the so-called “grey” or even “black” economy;
2. Every government-issued e-wallet will be pretty different from each other. I am sure none of the governments will allow any other government to provide them with the tech stack to control the money of its citizens. These e-wallets will be developed within the countries of use and their tech stacks will be quite different;
3. These e-wallets will not run on Visa/Mastercard or any other rails — it is too big of a fee stream to be handed over to a private company.
If you (as myself) believe that these statements are true, there will be a need for a “global connector” between all these e-wallets as global merchants will continue working globally and it makes way more sense to connect to one integrator rather than to connect to 200 local e-wallets. The only question to answer is who such a connector will be. You know which name we at Target Global bet on. Time will tell.
Target Global is an international investment firm headquartered in Berlin, with €2bn+ in capital commitments and co-investments. With offices in London, Tel Aviv and Barcelona, we connect the key European startup ecosystems and leverage the unique DNA of each of our target geographies, across our global network. Building on our experienced team with substantial operational and investment experience, we help exceptional entrepreneurs to build market leaders. Target Global invests across multiple stages, investing in fast-growing tech companies, targeting trillion € markets. Our Partners have been investing for more than 15 years in the digital technology space, backing some of the key European success stories. The Target Global portfolio includes companies such as Auto1, Docplanner, Delivery Hero, Rapyd, TravelPerk, WeFox and Zego.