Copper Street Capital set a “high bar” as it made its first ever exit by selling its minority investment in Italian payments platform Satispay, according to Jerry del Missier, founder and executive chairman. Satispay’s valuation was €100 million when Copper Street invested in 2018 – but exceeded €1 billion as the private equity firm exited in late September.
The number of consumers using Satispay grew by 800 percent to three million and the number of merchants by 450 percent to 200,000 during Copper Street’s investment period. That made it Italy’s largest mobile payments provider, according to Copper Street, and it is expanding in Europe with offices in Berlin and Luxembourg.
But it was in Satispay’s home market that Copper Street saw potential in 2018.
“We had a good understanding of the Italian financial system,” said del Missier, a former chief operating officer of Barclays Bank. “It really utilised an interesting tech solution that allowed merchants and customers to bypass traditional payment systems where you have to have an underling credit card.
“We thought that was quite interesting, it was proven technology, it was scalable and it could be the platform that cracks the cash conundrum in Italy.”
For those unfamiliar with Italy’s relationship to cash, a quick internet search will return articles suggesting that Italians are “allergic” to plastic payments.
“The long-time running joke, certainly in Italy, is that this is tax related,” said del Missier. “But of course, it’s much more than that.”
The aversion to cashless payments also stems from Italy, like Germany, having fragmented banking systems without real national champions, as well as Italy’s fragmented merchant market and low growth economy, according to del Missier.
“It didn’t make sense” for merchants to spend money on fees to credit cards, or on the technology to facilitate non-cash payments, he added. “There weren’t banks big enough to really actively promote the development of debit cards and this sort of thing. So, we saw in Satispay an opportunity to bypass that completely and it proved hugely successful.”
It goes without saying that the covid pandemic lockdowns helped push Italians – just like everyone else – towards online payments. But even in 2018, when few would have believed that in a couple of years much of the world would be under lockdown, there were already tailwinds for the business, according to del Missier.
“During the last five years, but particularly in the lockdown, the government was actively trying to motivate people to move off of cash,” he said. “Even though we were worried that retail activity would fall off a cliff during the lockdowns, the reality was it didn’t – for the simple reason that activity was expanded to online payments. It really became the benchmark for non-cash payment platforms in Italy.
“They had good first-mover advantage, a very lean structure. It just ticked lots of boxes.”
Of course, there are many other online and mobile phone payment systems, including from the likes of Apple and Google, available in Italy and Satispay’s other target countries like Germany and Luxembourg. But Milan-headquartered Satispay’s “first-mover advantage” specifically related to its structure, del Missier explained.
“The trouble is that in a number of these jurisdictions, Italy in particular, smartphone take-up is lower than it is elsewhere,” he said, “and merchants are not crazy about the fees they have to pay. Satispay is built on low cost and ease of implementation at the merchant side and at the customer side. Importantly, you control the relationship at both ends. This is client to merchant, via Satispay.”
The data harvested on the system also allows value-added opportunities, del Missier said, that could help it expand even further geographically.
“You’re walking by a place where you haven’t been much, so you get 5 percent off your next purchase,” he said. “There are all sorts of interesting add-ons that the team has started rolling on. Going into some of these other markets, you have the traditional phone plus credit or debit card underneath and you’re going in against primarily higher cost point of sale payments. They’ve had great success in uptake in Italy and I don’t see that they will have trouble growing their business elsewhere.”
In some ways, Copper Street’s role as a lead investor in the €15 million fundraising round by Satispay in 2018 was not in keeping with its typical investment strategy.
“First off, we aren’t a pure fintech investor,” said del Missier. “Although clearly Satispay is a fintech, we generally don’t go looking for those kinds of businesses. This situation was frankly unique from our perspective.”
London-based Copper Street is a lower mid-market European financial services-focused alternative asset management business founded by del Missier in July 2015. It has a hedge fund that invests in public securities and the private equity side, which has been operating as a fundless sponsor, with a view to building a track record with a handful of deals and exits and then launching a blind pool, del Missier said.
Copper Street “tends to gravitate towards the sub-sectors of specialty finance, asset management and wealth management”, said del Missier. “And then financial services infrastructure – payments and clearing, things like that. We’ve looked at the regulated space as well, and there are a lot of interesting opportunities.”
For the future, del Missier sees more potential action in the payments sector.
“There’s been a lot of deal activity,” he said. “Ultimately, there will be a tremendous amount of consolidation. We’ve already seen a great deal. It wouldn’t surprise me that the trend of consolidation continues and that you have a conglomerate of payment systems that each have particular characteristics that also utilise best in breed technology to transcend markets.
“This sector is nowhere near done in terms of the impact on the financial services industry.”
More broadly for the financial sector, del Missier sees the economy as being in the midst of a cycle change – something that creates opportunities. “It means disruption with businesses that have been predicated on growth through excess leverage who are having the chickens come home to roost with higher rates. The opportunity comes as a result of that disruption and a bit of distress. The next 18 months could be quite interesting.”
In particular, wealth management and speciality finance should be interesting, according to del Missier. Wealth management will benefit from demographics and large savings pools, and Copper Street in mid-October made its own move there by buying a majority stake in Thistle Initiatives Group, a regulatory compliance consultancy that includes wealth managers among its clients.
Speciality finance opportunities could come from credit businesses that are specialised around a certain sector, or companies such as debt collection businesses, he added.
One recent example of such a deal was Pollen Street acquiring a majority stake in PAIR Finance.