MC Payments made Singapore fintech history on February 22 by being the first digital payments company to list on Catalist, the SGX’s secondary board for startups.
This opens the door for other smaller fintech companies and their backers to exit via public markets, either by initial public offering or via reverse takeover.
“MC Payments’s valuation is S$130 million, which is too small to list on Nasdaq,” said Varun Mittal, partner at EY. “A lot of fintechs are looking at listing on SGX.”
Anthony Koh, founder of Mobile Credit Payments, says the journey to going public was anything but straightforward. “Private capital want fintech companies to stay private and try to get a higher valuation,” he said. “It’s tempting for entrepreneurs to stay private, avoid a lot of compliance and reporting, and exit through a trade sale.”
But staying-private-to-trade-sale is a shortcut that might also shortchange the fintech’s true prospects.
Hunter, not prey
“Our plan since 2015 has been to list in order to scale and build a brand name,” Koh said. “We want big companies to work with us, which requires trust. Banks and payments processors will have more confidence working with a listed entity.”
Now that MC Payments is listed (via a reverse takeover of a former video tech company, Artivision Technologies), it is in an enviable position. Instead of hoping to be acquired (by a corporate, or a bank, or a private equity fund, who knows?), the company now has a warchest to become the acquirer.
Proceeds will also go to enhancing its services and entering new regional markets.
“Private companies can’t control their exit,” Koh said. “And founders have to spend a lot of time fundraising.” He won’t miss that part of the job.
SGX is keen to get more fintechs to go public on Catalist, because the fintech industry operates on ecosystems, so attracting a few others will beget yet more. Attracting more fintechs will also make MC Payments look like a pioneer instead of an outlier.
But the process is difficult.
Track record
MC Payments didn’t just launch with a cool app, go viral and score an IPO. It’s a B2B fintech that was founded in 2005, long before “fintech” was a buzzword. It’s a good example of a tech-led idea that requires a lot of domain knowledge to understand – which makes the company valuable but also esoteric, and therefore hard to pitch.
Koh, a computer engineer, had already launched and sold one internet business in 2001. He saw the opportunity for mobile payments for credit cards long before this was an accepted idea. “Mobile wireless payments is the same business model for credit cards, but on the move. We wanted to get mobile to be part of the transaction,” he said.
He launched the company in 2005 with the help of funding from a startup equity grant run by SPRING Seeds Capital and SG Innovate.
A lot of fintechs are looking at listing on SGX
Varun Mittal, EY
But traction was difficult. Regulations had been written for physical transactions and online/web-based transactions, and hadn’t imagined mobile technology. Koh saw it coming, two years before Apple transformed the world with smartphones.
Another regulatory barrier was that in Singapore, MC Payments could not qualify as a “non-bank acquirer” in card payments. It could only be a technology provider to banks or to processors. (An acquirer is a licensed financial institution that processes credit or debit card payments for merchants.)
New tailwinds
Things began to change by 2012. This year, U.S. fintech Square – the San Francisco mobile payments company co-founded by Jack Dorsey in 2009 – was able to certify its first mobile point-of-sale in Singapore.
Square was in the same business as MC Payments but it was able to act as an acquirer in the U.S., so it rapidly built incredible scale. In Singapore, MC Payments was able to be Square’s local partner, working with Visa at points of sale. But it could not be an acquirer itself.
Private companies can’t control their exit
Anthony Koh, MC Payments
Rules were looser in neighboring markets. MC Payments expanded into Indonesia, Malaysia and Thailand, where it won payments licenses. But each market has its own rules and processes. POS practices also vary (for example, swipe-only, swipe’n’sign, chip-and-pin?). These factors also militated against scale.
By 2017, fintech was a hot topic. MC Payments expanded its investor base from “friends and family” to family offices to funds. And governments were taking steps to support tech startups.
After twelve years of operating, Koh saw this as the time to scale up, or get acquired. The company looked at options including M&A or listing on startup boards in Australia, the U.K. and elsewhere. But after talks with SGX, the Monetary Authority of Singapore and his consultants, Koh settled on the Catalist reverse takeover. He signed the deal with Artivision in 2018.
Going public: the not-very-glamorous bits
It would take three more years to actually go public. The process was a slog. It took a toll. The company had been looking at an acquisition but dropped the deal because it couldn’t manage it at the same time the team was preparing for Catalist.
Koh may not have been consumed with fundraising anymore, but he had a new master to serve: compliance. The due diligence involved regulators in other markets, not just Singapore’s. The company hired KPMG to ensure its accounts were in order, a pricey move for a startup, as well as Zico, a local investment bank, to sponsor it on Catalist.
Several times MC Payments punted the deal’s final date, in the hope it could hit other deadlines. A big hurdle loomed: its lack of a payments license in Singapore. Regulators in other markets voiced concerns about the company going public without proper licensing in its home market.
Fortunately, Singapore passed its Payments Services Act in 2019, a landmark piece of legislation for the industry. This provided a path for MC Payments to get a license. But it wasn’t a guarantee, so Koh requested yet another extension to the reverse takeover.
It is true that a private company can’t choose the nature of its exit. But a company going public can’t control the timetable around due diligence and audits, especially when it has to appease regulators in different markets. Deal extensions are the norm, but extend too long, and the company risks having events pass it by.
Trend-setter
Koh says SGX and MAS were helpful in these later stages. They were also keen to see a fintech list on Catalist.
The clouds parted on December 1, 2020, when MAS granted MC Payments its license. Market conditions were also buoyant. After an arduous courtship, the deal was consummated.
Koh says entrepreneurs naturally focus on product and clients, and don’t pay much attention to regulations, reporting, compliance, or the fine print in capital markets. They want to save on costs at all times. But there comes a point when cost savings become a barrier to growth.
“In our early years, we didn’t pay attention to compliance, accounting or reporting,” Koh said. “But these are of utmost concern to regulators and investors.”
Koh would like MC Payment’s listing to inspire other fintechs. “I hope we can be a showcase to other entrepreneurs,” he said.
