Digital SMB Banks: Mercury Increases its Lead

In a period of relatively slow growth for private fintech companies, especially the so-called neobanks serving small-business (SMB) customers directly, Mercury has emerged as the front runner. Its recent $300 million funding at $3.5 billion valuation (unclear if that was pre- or post-money, but we’ll assume the latter) almost doubled the 2021 valuation. That’s not easy considering how over-valued the fintech space was four years ago.

Why the valuation bump?

• $500 million in annual revenue in 2024: Given the relatively stable nature of banking revenues, that’s almost like a $500M ARR. Across 200,000 customers, which works out to $2,500 per customer or $200 per month.
• $150 billion in annual payment volume: With approximately 200,000 customers, that amounts to $750,000 per customer, or $60,000 per month per customer. That means they are serving the larger small business, the sweet spot in the SMB space. Those customers can generate significant revenues, and are relatively price-insensitive since they are too small to have dedicated treasury employees with incentives to cut better deals.
• Ten consecutive quarters of profitability: Assuming that includes Q1 2025, the company has been profitable since mid-2023

Mercury distinguishes itself from traditional banks by focusing on digital banking for small businesses and startups.

Core Features of Mercury’s Banking Platform

• Digital Account Opening: Clients can open accounts online without visiting branches.
• No-Fee Accounts: Mercury accounts have no minimum balance or fees.
• Virtual and Physical Debit Cards: Clients can manage virtual and physical debit cards.
• Invoicing and Payments: Mercury integrates with Stripe for invoice payments and includes account details in invoices.
• Security Measures: Mercury uses 3D Secure verification, push notifications, and real-time alerts to prevent fraud.
• Accounting Integrations: Mercury integrates with accounting software for transaction categorization, expense matching, and ledger synchronization.
• Expense Management Tools: Businesses can categorize expenses, set spend controls, and access transaction analytics.
• Multi-User Account Access: Users can assign different levels of account access.