Despite slowing digital game sales, Coda Payments cofounder Neil Davidson sees outsized returns in bumping up market share through new products, expansion.


Coming off 2021’s global funding highs, Singapore’s Coda Payments raised $690 million earlier this year from big league backers including the city-state’s sovereign wealth fund GIC and America’s Insight Partners and Smash Capital. That investment—its highest ever, which tipped the value of the payments platform for online game purchases at $2.5 billion—rewarded an elusive benchmark among Southeast Asia’s unicorns: profitability.

The VC funding environment has since turned bleak amid rising inflation and interest rates and the heightened risk of a global recession. But that doesn’t worry Neil Davidson, cofounder and executive chairman of Coda Payments. The funding raise, a secondary share sale, gave some returns to early investors including the firm’s founders, but it wasn’t necessary to tap fresh capital, he says in a video call from his office in Los Angeles. The company already had sufficient cash flow, which jumped fourfold to $68 million in the year ended September 2021, according to regulatory filings in Singapore. That’s allowed it to keep its eye on the prize, getting bigger.

“Coda Payments has a track record of historical performance that’s very credible,” he notes. “We can grow a lot over the next few years by making relatively modest gains in our market share.” (Davidson and cofounder Paul Leishman remain substantial shareholders in the company but declined to disclose their current stakes.)

As stuck-at-home consumers during the pandemic turned to online gaming and other digital entertainment, Coda Payments’ revenue nearly quadrupled to $310 million in 2021 from $81 million in 2019, while earnings before interest and taxes quadrupled to $43 million in the same period, the filings show. Its software processes payments for some of the world’s largest sites, including Activision Blizzard, Riot Games, Sea Group’s Garena, Netease, Tencent and Tinder. Coda handles over 1 million transactions a day, and on each one, it takes a 15% cut when users pay for things such as game accessories and top-ups. Its main competitors are Apple and Google but the company’s competitive edge is that it charges half of what the bigger rivals do for a similar service.

“Coda Payments has a track record of historical performance that’s very credible.”

Davidson is chasing new growth outside Southeast Asia, its largest market, with an aggressive global push across Europe, Asia, Latin America and the U.S. The expansion will include cross-border payments for games and other products as well as more app stores.

Since moving back to his hometown in California in 2019 and setting up the Coda office in Los Angeles the following year, Davidson has been working on deals with new and existing customers, which he hopes to realize in the next twelve months. “We’re starting from a very tiny position in these new markets,” the 41-year-old says. “If we are able to have an impact in these countries, even growing to a relatively small market share, [that] will actually generate pretty big returns for Coda.”

Davidson and Leishman, who is Coda Payments’ executive director, initially targeted e-commerce firms as potential customers when they launched their company 10 years ago. They were inspired by the rapid adoption of M-Pesa in Kenya—a mobile phone money-transfer service launched there in 2007—and hoped to replicate the model first in Indonesia and then across the region’s fragmented e-tail landscape. “We recognized enormous potential in Southeast Asia,” Leishman, 39, says by email. “The region had a large and growing population that was increasingly interested in purchasing digital content.” The Canadian entrepreneur, who has a business administration degree from the Ivey Business School at Western University in Ontario, recently moved back to his hometown in Toronto from Hong Kong to build partnerships with Western digital content publishers.

Coda Payments’ first products offered an alternative to using a credit card to pay for online purchases, such as carrier billing (where payments are charged to a user’s mobile phone bill) and e-wallets. The cofounders based themselves in Jakarta where roughly 70% of payments were still made in cash. “A significant portion of consumers who were coming online for the first time didn’t have Visa or Mastercard, which at the time was what people needed to participate in the internet economy,” says Davidson, an M.B.A. graduate from Harvard University. “We felt there was an opportunity to link up local alternative payment methods that would help unlock a lot of spending online.”

The duo had met in 2009 at GSM Association (GSMA), a London-based alliance of over 750 mobile carriers from around the world, where they provided support for mobile payment services for the unbanked in Asia, Africa and Latin America. In tapping telecoms firms in Southeast Asia as Coda Payments’ first customers, “We were able to draw on everything that we learned at GSMA,” Davidson says. “Some of the relationships that we have built while we were at GSMA helped us get Coda off the ground.”

They quickly pivoted to online game publishers who had a ready need for their payment software. “If you’re selling a digital product, you obviously cannot use cash on delivery because there’s no physical delivery,” Davidson says. Within a few years, they had offices in Singapore (moving their headquarters there in mid-2014), Malaysia and California.

Initially Coda Payments integrated its digital payment services on publishers’ websites, but saw a gap with emerging creators of mobile games, who typically distribute their products on apps. In November 2014, the startup launched Codashop, which distributes accessories and credits for both PC-based and mobile games, today drawing over 50 million visitors every month across 65 markets. Its Codapay enables game publishers to accept over 300 modes of payments on their own websites.

While trends such as a deeper fragmentation of payment methods benefit the firm, global spending on digital games has slowed. After surging 30% to a pandemic high of $197 billion in 2020, sales growth decelerated to 20% last year and will likely taper off to 6.5% in 2022, according to Statista. Still, the company expects the impact will be minimal, even as the tech sector, including payment giants Stripe and PayPal, respond to the broader economic downturn with layoffs. “While we have adopted a more disciplined approach to hiring in the current climate, we are in the early innings of pursuing a massive global opportunity, and so continue to invest in building out our footprint and capabilities,” Davidson says by email, declining to provide specific capital spending plans or earning projections for this year.

That’s largely because Coda Payments’ key market is expected to hold its own despite the turmoil. Consumption of digital media in Southeast Asia—including gaming and video streaming—is projected to triple to $43 billion by 2025 from $14 billion in 2019, according to a study published by Bain, Google and Temasek in October. “Southeast Asia is benefiting from secular trends such as its young population and rising affluence across the region,” says Florian Hoppe, Singapore-based partner at consulting firm Bain & Co.

Anticipating further growth, Coda Payments’ Singapore-based backer Golden Gate Ventures—whose more than $1 million investment was valued at over $100 million as of April, generating a blended IRR of over 100X—will keep the firm in its portfolio. “Coda is an incredibly strong company, a rare profitable unicorn,” says Vinnie Lauria, a Ho Chi Minh City-based managing partner at Golden Gate Ventures. It sold some shares in Coda Payments in April, but aims to hold on to its remaining stake of less than 5% (currently valued at $75 million) to get “outsized returns” once the company launches an IPO.

While Davidson is also confident Coda Payments will continue to gain momentum in the post-pandemic era, the company isn’t in a rush to list. “We think we can be more effective at building long-term value by staying private,” he says. Timing would also depend on market sentiment improving. “People now have other options to spend their discretionary income on other than digital entertainment,” he notes. “While that will likely attenuate our growth a little bit in the short run, we’re very confident in the long-term growth potential of digital entertainment.”

The gaming industry also has to contend with regulatory clampdowns, most recently in India. The country banned Garena’s mobile game Free Fire in February and launched an investigation six months later into potential anti-money laundering rule violations at payment companies, including Coda Payment’s Indian subsidiary. In September, the Enforcement Directorate searched the firm’s Bangalore office and froze its accounts totaling 685 million rupees ($8.4 million). “These allegations are without merit and stem from a misunderstanding of Coda’s business model,” says Coda spokesperson Nikolay Sushkov in an email. “Coda is cooperating with the relevant authorities in this investigation.” The investigation is still pending.

“We think we can be more effective at building long-term value by staying private,”

Such oversight is necessary as digital games and payments associated with it become mainstream, says Darren Yong, Singapore-based head of research for technology, media and telecommunications in the Asia-Pacific at KPMG. “Regulation needs to evolve and catch up with technology and protect consumers,” he adds.

Collecting payments on a cross-border basis is a major stumbling block for digital game publishers given the regulatory overheads, Davidson says. With the company working with locally regulated payment service providers, Coda is playing a key role in helping digital content providers expand across several jurisdictions, boosting the company’s market share in new markets around the world, he adds.

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