Commentary

Plaid Charges Visa $5.3B For Its APIs, Analytics

Visa is buying Plaid Inc., the San Francisco-based startup that allows fintech apps such as PayPal’s Venmo to connect to customers’ bank accounts so that folks can pay each other back for a non-alcoholic beer and let everybody else know about it, for $5.3 billion.

advertisement

advertisement

“Plaid’s technology lets people link their bank accounts to mobile apps such as Venmo, Acorns and Chime, with the San Francisco-based firm saying its systems have been used by one in four people with a U.S. bank account,” write  Reuters’ David French, Krystal Hu, Saumya Sibi Joseph and Ankit Ajmera. 

“Founded in 2013 and currently connecting with over 11,000 financial institutions across the United States, Canada and Europe, Plaid will be able to use the acquisition to leverage Visa’s global brand in expanding its own business, according to a source familiar with the matter,” they add.

“This acquisition is the natural evolution of Visa’s 60-year journey from safely and securely connecting buyers and sellers to connecting consumers with digital financial services. The combination of Visa and Plaid will put us at the epicenter of the fintech world, expanding our total addressable market and accelerating our long-term revenue growth trajectory,” Al Kelly, CEO and chairman of Visa, says in the press release announcing the deal, which is expected to close in the next three to six months.

“In a call with investors Monday…, Kelly said Plaid has seen a compound annual growth rate of roughly 100% since 2015. Kelly said the deal was a ‘long-term’ play and would position Visa for the next decade. It will help expand the company’s... relationships with fintech companies, as well as boost Plaid’s growth,” CNBC’s Kate Mooney writes.

“Both Visa and Mastercard Inc. have been seeking to move beyond card payments in recent years to fuel their rapid revenue growth. Mastercard bought  a payments platform owned by Nets for $3.2 billion last year, using its biggest-ever acquisition to move further into so-called account-to-account payments,” according to  a Bloomberg News story published by American Banker.

“Plaid is one of a handful of firms that is central to facilitating the growth of new digital-financial services. Betterment, PayPal Holdings, Coinbase and others use Plaid’s software to link their trading, investment and payment services to more than 200 million consumer accounts at banks. What’s notable for Visa is that in many of those scenarios, credit or even debit cards aren’t involved,” Telis Demos observes  for The Wall Street Journal.

“Credit and debit cards are of course still a huge and growing business. As long as people are spending more, and paying less often with cash, there is room to grow. Card networks have also worked hard to ensure that many new digital banking tools, such as Apple Pay or PayPal’s wallets, keep cards in the picture. Customers merely turn their physical cards into virtual ones that can be tapped in stores or used with one-click ‘buttons’ when shopping,” Demos adds.

“Plaid’s exit price is a triumph for its investors, who put a combined $353.3 million into the company, according to Crunchbase data. Most important among those rounds was a $250 million infusion that came in late 2018. Index and Kleiner led that round, valuing Plaid at $2.65 billion, or 50% of its final sale price (we doubt that that ratio is a coincidence),” Alex Wilhelm and Ron Miller write for TechCrunch.

“It was later revealed, Mastercard and Visa also … quietly participated in the round,” they continue. “Whether those investments were large enough to grant Visa information rights isn’t clear, but certainly the two credit card giants had more insight into what Plaid was doing than they did before their investment.” 

 “Described as ‘strategic investments,’ the two financial services heavyweights sought not only to provide Plaid with financial backing, but also to leverage the fintech firm’s sprawling technological capabilities to improve their own services,” Rey Mashayekhi writes  for Fortune.

“With Plaid’s APIs (application programming interfaces), Visa could potentially improve the customer experience via everything from fraud detection to real-time account balance verification -- services that ‘reduce the friction around financial transactions,’” as Bill Sheedy, executive vice president of Visa’s strategy group, told Fortune at the time, Mashayekhi continues. “A little over a year later, Visa has decided to come back for the whole thing.”

“We founded Plaid to serve an industry that did not yet have a name, with the belief that financial services would (eventually) embrace technology. We love fintech, and I’m floored at how large it has become. So proud of this ecosystem and its impact on consumers,” Zachary Perret, who co-founded Plaid with William Hockey, tweeted yesterday.

Next story loading loading..