$5.3 billion. That’s what Visa will pay to purchase fintech firm Plaid as reported in MarketWatch. What does Plaid do that makes it worthy of $4.9 billion in cash and the rest in retention equity and deferred equity?
The most visible activity is its role in connecting fintechs with traditional banking products. As examples; if you attach Venmo to your checking account for cash-out transactions, you will be asked for checking account data by Plaid who will verify the account and facilitate transactions. If you wish to attach account data automatically to budgeting or savings apps offered by Acorns or Betterment, this is also facilitated by Plaid.
So what is Visa’s interest in these capabilities? As Visa continues to expand its capabilities beyond its core card business, Plaid jump starts Visa’s ability to participate in a form of open banking. While data sharing between fintech companies and banks is codified in many countries, in the U.S., there are no rules that require banks to share their customers’ data nor are there data standards that all banks have agreed to for swapping this kind of information
You may have read recently that some banks have been rejecting Plaid’s requests for account data based on concerns over privacy and security. (One such article can be found here). This is certainly an area that Visa can help Plaid overcome, given Visa’s deep relationships with financial institutions.
All the while, Visa is also protecting a potential encroachment on the card payment model. Plaid can connect payment wallets to checking accounts that circumvent the card networks for purchase transactions. Now Visa can have at least some control over how and when that happens through this latest acquisition.
More about the deal from the MarketWatch article:
The deal, which is expected to close in the next three to six months, continues Visa’s M&A kick, following a busy 2019 in which the company bought cross-border services company Earthport and chargeback-reduction company Verifi, among others.
Visa has long been known as a card processor, but lately it’s been referring to itself as a “network of networks.” Rather than merely connect payment industry players when someone wishes to make a card purchase, Visa is trying to tap into newer financial-technology experiences, including by providing a suite of services to developers.
The company is “increasingly trying to move from being strictly focused on payments to being focused on the movement of funds for any purpose,” according to its conference call following the deal announcement. Visa calls Plaid “the leading financial data network in the United States.”
Overview by Sarah Grotta, Director, Debit and Alternative Products Advisory Service at Mercator Advisory Group
