High premium transaction by MasterCard to acquire Ekata

MasterCard is acquiring Digital Identity Verification Start-Up - Ekata, which identifies people behind transactions in real time with its AI powered and machine learning software, at a price of $850m. With the introduction of Ekata, MasterCard aims to create one stop-shop for businesses, merchants, governments, and Start-Ups to enhance their security of e-commerce transactions, and let merchants increase their revenues and customer retention rate with the seamless e-commerce experience.

Market Trends in E-Commerce, Digital Payments and Security

Acquisition comes at a time when the global retail e-commerce sales for 2020 are estimated to be around $4.28 trillion, growing by about 28% over 2019 and is expecting strong growth through coming years. Transactions have become more digital but the consumer confidence has taken a hit in 2020 with 4% increase in consumers reporting concerns for digital payments security. Also, on average online merchants had 24% increase in fraud attempts from 2019. In result, it becomes important for MasterCard to enforce the trust in its clients and MasterCard wasted no time in acquiring 1.5 year old Ekata which till date has not raised a dollar but enjoys customer base of more than 2000 including names as Lyft and Postmates. It has added 300 new customers only in 2021 and grew its revenue by more than 33% last year.

Valuation Analysis and Multiples

MasterCard valued Ekata at around 20 times of its $40m-$50m revenue in 2020, while a similar 10 year old Start-Up Signifyd was valued at a multiple of 10 times of its 2020 revenue $120-$140m at $1.34b in April 2021 at its Series E funding round of $205m, taking its funding close to $400m and it includes the clients as one of the biggest retailers like Reckitt Benckiser and Samsung. In a similar transaction Kount was acquired by Equifax in January 2021 for $640m which is 8 times of its 2020 revenue ($60m). The revenue growth for Ekata has been strong but is short in comparison to its peer Signifyd which almost doubled its revenue in 2020 and is expected to touch down $200mn in 2021.

Future Growth, Market Share and Conclusion

Though the advantages for the MasterCard remains high as Ekata will be integrated into its Fraud Prevention and Digital Identity segment, the market that is worth $30b and is expected to grow to worth $107b in 2028 at a CAGR (Compound Annual Growth Rate) of 20%. MasterCard has more than 35% market share in credit card transactions and growth of Ekata which is well above the expected growth rate of industry, the Ekata in its best shot with growth rate of 40-50% can get market share of worth $350-400m by 2025. However, Ekata most certainly may cover the overprice paid relative to Kount but to topple the Signifyd numbers seems implausible, whose growth rate and revenue numbers are well above Ekata. This seems that MasterCard has paid high premium to integrate digital identity verification system.


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