June 17 2024

Papara leans into M&A and international expansion

Turkey’s lone fintech unicorn has growing global ambitions. Papara, an Istanbul-based payments firm valued at roughly US$2 billion, recently acquired SadaPay, one of the most prominent Pakistani fintech startups. While the sum that Papara paid for SadaPay has not been disclosed, startup funding tracker Crunchbase estimates it could be about US$50 million.

Papara’s decision to buy SadaPay looks like a wise move – even if the Pakistani fintech sector’s development has slowed a bit since the pandemic-era fundraising boom. In the 2023 fiscal year, fintech funding in Pakistan fell 80% to just US$20 million while the number of deals decreased 44% to just eight. That said, SadaPay previously raised about US$20 million from investors – such as Kingsway Capital, Raptor Group and Recharge Capital – and has been licensed as an Electronic Money Institution (EMI) by the State Bank of Pakistan (SBP) since 2022. The Islamabad-based company is a major player in Pakistan’s digital payments space, offering digital wallets, international money transfers, business accounts and Mastercard-issued debit cards.

The price Papara paid looks reasonable as well – if we use market intelligence provider Dealroom’s estimate of the company’s valuation: US$43-64 million.

Meanwhile, the market fundamentals for Pakistan’s fintech sector are strong. Incumbents have limited reach, especially when it comes to digital finance, and the addressable market is huge, with up to 110 million unbanked people. Additionally, both internet and mobile banking users continue to grow, rising  15.5% and 30.2% in 2023, respectively.

In addition to the SadaPay deal, Papara recently announced a tie-up with the U.S. fintech DriveWealth that will allow the Turkish startup’s 20 million users to invest in U.S. stocks on the Nasdaq and NYSE in real time. The new offering, set for an October launch and accessible directly through Papara’s app, will also allow users to buy and sell fractional shares in U.S. equities and ETFs with a minimum investment of US$1.

Offering stock trading to retail users is fairly common practice among ambitious payments fintechs aiming to diversify their services – both Revolut and Paytm rolled it out a while back – but we would caution Papara not to get ahead of itself. In a statement, the company’s co-founder and CEO Emre Kenci sad, “Partnering with DriveWealth marks the next chapter of Papara’s transformation into a one-stop financial super app.”

There is a fine line between a well-diversified suite of products and too many non-core offerings. While fintechs that begin in retail payments often aim to transition into higher-margin segments, the super app concept has not proven to be successful outside of China and to a certain extent Korea. It can be prohibitively expensive for startups to subsidize users across many different segments of digital financial services.

In contrast to Papara’s super app gambit, the Turkish fintech Midas is entirely focused on retail investing, and has a clear value proposition: significantly lower transaction and commission fees for Turkish customers who want to invest in U.S. or Turkish stocks. In April, Midas raised US$45 million in a funding round led by Portage of Canada. Time will tell whether specialization or the super app route works best in Turkey.