Underwriting Payments in 2025: What Investors Miss (and What Actually Moves the Needle)

Payments is crowded — but misunderstood.

As investor interest returns to infrastructure, embedded finance, and merchant commerce, we’re seeing a sharp increase in deal flow across ISOs, payfacs, SMB lenders, and acquiring platforms.

Yet many investment committees are still relying on traditional SaaS metrics, or worse, surface-level processor data, to evaluate deals in this space.

Below is what we believe every investor needs to understand before underwriting a transaction, leading a round, or preparing a portfolio company for exit in merchant acquiring or payments infrastructure.

📉 Net Residual Trends: The Engine of Value

Net residuals remain the single most predictive metric in both M&A and growth capital deals.

Why it matters:

• Buyers and lenders care far more about predictable merchant-level cash flow than top-line revenue.

• 3-year CAGR on net residuals is a valuation anchor — especially in debt and secondary rounds.

• High-quality books show smooth decay curves and resilience under cohort pressure.

🧑‍💼 Channel Composition: Controllability = Premium

Investors often overlook the composition of sales and distribution — a mistake that directly impacts valuation.

Global nuance: In non-U.S. markets (e.g. UK, DACH, MENA), channel norms differ — but buyer preferences trend toward integration, control, and post-close leverage regardless of jurisdiction.

📊 Attrition & Churn Analysis: Portfolio Durability Underwrites the Multiple

Churn in payments is not binary — it’s segmented, and value-relevant.

Key diligence filters:

• Annual attrition <15% = strong

• Above 20% = pricing haircut unless offset by LTV/CAC excellence

• Segment by MCC and agent source for better insight

💳 Average Ticket & MCC Risk: Valuation Adjustments Happen Here

Payment processors and acquirers price merchants based on volume, risk, and vertical exposure — investors should too.

Merchant bases skewed toward MCCs like 5944 (jewelry), 5967 (direct marketing), or 7995 (gambling) often require holdbacks, reserves, or post-close adjustments.

🧾 Residual Composition: Know What You’re Buying

Residual revenue looks attractive — until you realize the contract won't let you touch it.

Red flags to assess pre-LOI:

• Single processor exposure (>70%) = strategic risk

• First right of refusal clauses (ROFRs) = deal-killers if unaddressed

• Contracts that prohibit assignment = asset sale with tax and diligence friction

🛠 We routinely restructure residual ownership, ROFR release, or assignability as pre-conditions to clean sale or financing.

⚙️ Technical Structuring: Where Good Deals Go to Die

The most common reason deals fall apart in payments? Structuring errors that surface late in diligence.

Key items to validate early:

• Assignability of contracts and streams

• Clear chain of title on merchant portfolios

• Agent agreements with termination clauses and non-solicits

• Processor-side rights that allow clawbacks, recoupments, or stream disruption

💰 Post-Investment Capital Deployment: It’s Not Just GTM Spend

Once capital is in, value isn’t created by ramping headcount. It’s created by:

• Consolidating agent economics (buybacks and rationalization)

• Investing in POS/ISV partnerships (tech lift → merchant retention)

• Automating onboarding, residual tracking, and merchant support

Capital deployment frameworks should tie directly to merchant LTV, NRR, and OPEX leverage. Anything else is dilution without uplift.

💡 Tech That Moves the Multiple

Not all “fintech” tech justifies a valuation premium. In payments, integration and insight matter more than front-end gloss.

Closing Note: In Payments, It’s Not About Hype — It’s About Structure

As you look at buyouts, secondaries, or growth rounds in this market, the best investments won’t come from pitch decks — they’ll come from structural insight:

• The CFO who knows their ROFR exposure

• The operator who built cohort-level attrition tracking

• The founder who aligned tech roadmap with merchant lifetime value

• The deal team that closes because diligence confirms the thesis

This is where capital creates real leverage in payments.

If you’re looking at an investment in this space — or want an outside perspective on one you already made — happy to dive in.

Let’s talk.

—
Tom

Tom C. Schapira
Founder and CEO
Imagine Capital Group
E: [email protected]
Website: http://www.imaginecapitalgroup.com

Securities Offered through Wellesley Hills Securities. Member FINRA/SIPC