Cross-border payments is a trillion-dollar market, which businesses have been tapping into for some time. Back in 2021, the cross-border payments industry saw a surge of IPOs from companies – including Payoneer, Flywire, Remitly, dLocal and Wise – that have scaled rapidly on the back of the demand for easier, faster and more cost-effective payments globally.
More recently, however, economic uncertainty and raised interest rates have changed the environment for investors. Many have become more focused on profitability over growth, resulting in more scrutiny on spending. Some companies have even delisted from the public market, allowing them to invest in growth without having to explain the impact on their bottom lines.
Having said this, several cross-border payments companies saw their share prices rise in Q3 2024, including Corpay (formerly Fleetcor); remittances players Wise and Remitly; and education payments-focused Flywire. B2B-focused payments provider Payoneer also broke back through its public markets listing price, making it one of the first companies to do so from the companies that went public in 2021.
With the market expecting more IPOs in the future and a growing regulatory focus on the space, these share price rises indicate growing faith from investors in the cross-border space – but what’s driving it?
Infrastructure and diversification are driving rapid expansion
Some of the biggest global payments companies have built vast payment networks that allow them to expand and grow quickly in new markets, thereby justifying customer acquisition costs and raising their appeal to backers.
Payoneer, for example, has connected with local rails to enable localised payouts across emerging markets, as well as installing sales teams with knowledge of those markets. This allows it to deliver specialised products to high-value customers in those regions, and then cross-sell other offerings as it grows.
“The legacy banking infrastructure and the legacy banks do not have the capabilities, multi-currency accounts technology, go-to-market capability or network dynamics to create that flywheel,” says Payoneer CEO John Caplan.
Meanwhile, Corpay saw its first $1bn quarter in Q3 2024, backed by solid expansion into non-US geographies through its platform. According to Cross-Border Group President Mark Frey, the company’s product helps it easily compete in new markets, building bases that attract larger corporate customers quickly.
“Within six months, these businesses are already profitable and funding their own growth on a go-forward basis,” says Frey. “That becomes very attractive from an investment thesis standpoint.”
Similar gains are being seen in the consumer space, with Remitly seeing its first profitable quarter in Q3 2024. The remittances player grew its customers by a record amount and raised revenue by 39% while decreasing its spend per quarterly active customer by 8.5% YoY. This combination of solid growth and efficient spending likely contributed to its share price rise of 17% the day after results.
Building out infrastructure and expanding to new markets has helped these companies to diversify their offering, which helps build resilience if some markets underperform. This is the current challenge for B2B-focused CAB Payments, which listed on the London Stock Exchange in July last year, but has since seen its share price fall significantly after central bank interventions caused a drop in volumes in some of its key corridors.
Diversification is also crucial when it comes to breaking into new markets and responding to trends in the industry. For example, Western Union remains the world’s biggest non-bank remittances player, but has seen its share price fall significantly (3% after Q3 2024 earnings) as it lost share to other digital challengers and has seen various headwinds that have led to revenue declines. As a result, it has been investing more to diversify into digital remittances.
Growing interest in the cross-border payments industry
As inflation slows and central banks continue to cut interest rates, several cross-border payments players are gearing up to go public – including Stripe, Airwallex, Ebury and Klarna. The latter’s recent IPO filing could lead others to follow, in turn bringing more attention to the cross-border payments industry.
Digital wallets continue to be adopted in markets worldwide, and we’ve also seen some major players refocus their attention on the space, such as PayPal with recent efforts to reposition its Xoom remittances product. Meanwhile, central banks worldwide continue to work on initiatives around blockchain, AI and CBDCs – though the tangible impact of these on the industry could be some way off.
In the background, there has been a global push to make remittances faster and more cost-effective, with a key example being the G20’s targets for cross-border payments. In my company FXC Intelligence’s own analysis of the FSB’s report on these targets (published in October), we found that there is still a long way to go in the retail space, with no send regions currently achieving the target average cost for remittances of 1% by 2027, while almost a quarter of corridors are above the targeted maximum average cost of 3%.
A massive opportunity is still there for the taking and as cross-border payments players step up to seize it, we could see more and more investors getting onboard. However, in order to keep their interest, companies in the space need to show that they themselves can invest efficiently, building diversified businesses that serve the needs of their target audience across different geographies, while also remaining resilient against macroeconomic effects.
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