Funding the float: Why Venture Debt fits Cross-border Payments

Cross-border payments is one the fastest-growing fintech verticals, increasing from an estimated $150 trillion in 2017 to $190 trillion in 2025, and expected to grow further to $250 trillion by 2027[1][2]. The drivers for this are well understood – rising global e-commerce, increasing international supply chain fragmentation and the widespread adoption of digital wallets and cryptocurrencies in trade. This comes alongside an ever-growing expectation from customers and suppliers for seamless, same day, same hour or instant settlement, meaning the industry is seeing a wave of new players finding innovative ways to move money faster.

Scaling a cross-border payments business is capital intensive. Like most start-ups, these companies need money for R&D, market expansion, brand awareness, and regulatory licenses to name a few, all of which are great use cases for equity investment. However, beneath the obvious growth spending sits a less visible and arguably more structurally important funding requirement: working capital float.

Cross-border payments are not a single transaction. It is a chain. When your customer in Micronesia sends you $10K and it lands within the hour, the payment may feel instantaneous. In reality, the provider facilitating that transfer may not receive that settlement for hours or even days. In the meantime, they need liquidity in place to make the payment happen.

Crucially, the need  scales with transaction volume and each new corridor.  Doubling volume means doubling the pre-funding and settlement float required and opening new corridors means new pre-funded bank accounts.

Equity is less-efficient, for this use case.

The settlement floats is self-liquidating and has a short duration. It cycles through quickly, replenishes and cycles through again. In contrast, equity is permanent, expensive and dilutive. At its core, this is about matching the type of capital with the type of asset: using long-term equity for short-term operational liquidity is not always optimal. Using equity to fund the float depresses capital efficiency and ultimately can weaken the return profile VCs are looking for.

Instead, you want a solution that is flexible, efficient and scalable – one that can grow alongside transaction volume and can be repaid as cash naturally cycles through the business. In other words, debt. A venture debt structure allows a company to draw what it needs, when it needs, without sacrificing equity at every step. For lenders, this dynamic is attractive – they can see reoccurring transaction revenues, short settlement cycles and capital turning quickly.

Take Wise for example, they raised a £300m syndicated debt facility in 2022 explicitly structured to provide flexible access to working capital as it scaled across new markets and corridors[3]. Closer to home, Paysend, the UK-based technology company that builds and operates global payments infrastructure raised $25m in venture debt from Claret to support its international expansion and scale the instant-settlement network behind its payouts.

Timing is important however. Venture debt is most effective when traction is proven, growth is visible and when introduced alongside or shortly after an equity round, when the balance sheet is strongest. Waiting until liquidity pressure emerges usually results in less flexibility and more constrained terms.

The businesses that win in this space will be those that finance the movement of money most efficiently. Increasingly, that means using debt to support the operational liquidity that scale demands and ultimately fund the float.

Author: Emma Jones

[1] https://www.bankofengland.co.uk/payment-and-settlement/cross-border-payments

[2] https://www.grandviewresearch.com/industry-analysis/cross-border-payments-market-report

[3] https://www.fintechfutures.com/lendtech/wise-lands-300m-debt-facility-to-fuel-growth-plans