Visa to acquire Fintech startup Plaid for $5.3 Billion

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Visa, a credit card giant, announced on Monday that it is acquiring Plaid, a San Francisco based Fintech API startup for US$5.3 billion, to expand its horizons beyond card payments and into the booming Fintech industry.

This price marks a major victory for Plaid’s investors, coming out as double of what Plaid was valued at in 2018 when it raised US$250 million during its Series C round, setting its value at US$2.65 billion.

This purchase is highlighting the increasing willingness of old-guard financial firms to pay top-price when acquiring companies that have established solid positions in the field of the digital economy, in a bid to remain competitive against rapidly expanding Fintech startups.

So what does Plaid do exactly

Plaid’s technology acts as a link between popular financial apps such as Venmo, PayPal and Coinbase, and customers’ bank accounts, using APIs to channel data between the two parties, providing easy financial services for its users.

Founded in 2013, Plaid is one of the few companies that play a key role in driving forward the rapid expansion of the Fintech field, working with 11,000 financial institutions worldwide, linking over 200 million user accounts to its services.

To put numbers into perspective, about a quarter of people with a bank account in the U.S. have used Plaid’s service to connect to one of its’ partners.

The scale of Plaid’s operation indicates a high demand for financial services, that enable easy access when transferring funds between accounts, converting them into cryptocurrencies or controlling their savings and investments.

What’s in it for Visa

What should be noted is that the majority of transactions powered by Plaid do not involve credit cards or debit cards in any form, which may have been one of the motivators for both Visa and MasterCard when they invested into Plaid during 2018’s funding round. 

Both of these industry Giants have been aiming to expand their scope of operations beyond traditional card payments and into the growing field of Fintech apps and non-card, digital payments.

Just a year ago, Visa bought Earthport, a cross-border payment solution company, after MasterCard attempted to do so, while the latter purchased Vocalink, a fintech company providing services for transferring funds between accounts.

Acquiring Plaid will open doors for Visa to expand further into the field of digital payments and give it greater access to Fintech Firms, enabling Visa to take on a more significant role in the expansion of the Fintech industry as a whole.

Moreover, it will enable Visa to diversify its assets, and making it less susceptible in a likely scenario that non-card payments will eventually replace traditional methods of using debit and credit cards for users to pay for their purchases. 

Data access and potential tradeoffs

Yet, the most significant change will likely come in the form of how users’ financial data is handled. There has been a long-running concern from banks’ on the topic of data security, as new companies gained access to peoples’ financial data. 

To break it down, the way plaid’s wire transfers work is, it ensures that users can transfer funds into services, which could negatively impact their credit score, such as online casinos, without banks being aware of it.

The acquisition will likely bring a change in how users’ data is handled, giving banks access to previously hidden information.

This would directly impact online casino providers, as stated by Vice Chief Executive at one of Pragmatic Play game providers in NZ, Adrian Pierce, according to whom the impact would negatively affect user base of online gaming providers globally, which would necessitate such platforms to shift to alternative payment methods, including potentially fully transferring to crypto payments. 

Old rivalries

Visa’s takeover of plaid indicates a continuation of its rapid move to root itself deeper in the Fintech field, which has been happening for over a year now. 

While the acquisition means that Visa will be much more involved in the expansion of the Fintech industry, whether or not it will take the leading role remains to be seen.

MasterCard has been making its own moves to strengthen its position on this new frontier by acquiring significant assets in an effort to snatch up untapped B2B and P2P opportunities.

For now it seems that major developments are yet to come, which will be closely monitored by Silicon Valley.

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