11:FS Head of Research, Sarah Kocianski, looks at the likely impact of Visa’s acquisition of Plaid on the fintech itself, the payments network, and the wider industry.
The middle of January saw a huge announcement that took many by surprise – Visa revealed it was acquiring Plaid, the San Francisco-based application programming interface (API) developer, for $5.3billion.
At least, on one level, it was a surprise: it came with no warning and little advance speculation. But the move does make sense. Visa participated in Plaid’s Series C funding round and maintains a minority stake in its (much smaller) competitor, TrueLayer.
The payments giant has been looking into API companies, with a broader goal: Visa intends to be the key infrastructure provider for the entire fintech ecosystem.
What the acquisition means for Visa
The payments industry has traditionally been Visa’s home turf but, lately, it has tried to move into fintech infrastructure through efforts like its Fast Track programme, which helps fintech firms start issuing cards within six weeks.
In this regard, it’s trailing the competition. Mastercard was the scheme of choice for early fintech firms, and already has its own API provision and aggregation platforms. So, Visa has some catching up to do. Luckily, Plaid can help.
The deal offers plenty of enticements for Visa. It brings new talent to the company and should enable it to create productsand services that benefit end users. In turn, that helps Visa’s overall growth strategy and creates new revenue streams. Andit creates a pipeline to 11,000 banks and financial services companies – that’s a lot of customers and datasets that Visa can now access, along with information from Coinbase, Robinhood, Venmo and more.
It would seem Visa’s goal is to come up with new ways to make money in a newly emerging ecosystem while keeping pace with Mastercard. The Plaid acquisition should help it do both.
What this means for Plaid
Plaid is in a good place. It has attracted significant interest, developers love it, and the acquisition price was double the company’s last valuation in 2018. So, where does it go from here?
Acquisitions of this size have the potential to get messy; Plaid does very well on its own, but Visa will need to bring its learnings, people and technology into the fold to get the most out of this deal.
That’s a hard task for a company as big as Visa, and the fact that Plaid is itself pretty large will compound the difficulty. How can Visa and Plaid become strong together without the former squashing the latter? That’s the big question going forward.
What this means for fintech
Plenty of digital ink has been spilled about the amount of money involved here, but compared to something like FIS’s $43billion WorldPay acquisition, this isn’t that big. The Visa-Plaid deal is exciting because it signals a priority shift in finance more broadly.
So far, most of the innovation in the industry has involved putting new interfaces on existing technology. With this acquisition, Visa understands that the industry’s underlying infrastructure needs to change and it’s using new technology to do it.
The end result will be better products for consumers and businesses. And that has the potential to benefit not just Visa and Plaid, but the industry as a whole.