Visa Buys Plaid for $ 5.3 Billion to Reach Startups | Bank innovation BANKING

Visa Inc. developed into one of the most valuable financial companies in the world by acting as a connecting pipe between banks and merchants.

Now it’s a big bet to do the same for data between banks and financial startups.

Visa agreed to pay $ 5.3 billion for Plaid, a fintech company that combines popular apps like Venmo with customer data in the established banking system. The deal covers a meteoric rise for plaid and aims to accelerate the rise of Visa, which has tripled its shares in the past five years. In a 2018 funding round, the sale price is double of Plaids $ 2.65 billion.

Plaid’s developer tools support a number of popular financial apps such as Venmo, Coinbase Inc. and Acorns Grow Inc. by channeling the banking information they need for their apps and websites. The company, founded in 2012, has more than 200 million linked accounts on its platform, according to an investor presentation. This access underscores consumers’ request to send their data to services that can exchange money between accounts or cryptocurrencies, give advice on personal finance, or refund a friend after brunch.

About a quarter of those with a U.S. bank account used plaid to connect with the approximately 11,000 financial institutions the company works with. This has sometimes placed Plaid at the center of tensions between fintech disruptors and banks, raising concerns about security and sometimes excluding the parties from outside.

data access
“We don’t see Plaid’s model change, we see it helps them accelerate their growth,” said Al Kelly, Visa chief executive officer, at a conference call on the way Plaid charges its fees earned.

But the way data is exchanged is likely to change, Visa President Ryan McInerney said in an interview. Visa will work with banking partners such as JPMorgan Chase & Co. to ensure that fintechs collect consumer data “appropriately,” he said. “We have close relationships with most financial institutions and intend to further develop Plaid’s data practices,” he said. As an advantage, fintechs may get more reliable connectivity.

Plaid has attracted investments from Goldman Sachs Group Inc. and venture capitalist Mary Meeker. Visa and Mastercard Inc. are also investors in Plaid said last year in a blog post. Visa expects the acquisition to be completed in the next three to six months and the acquisition to increase revenue growth by 80 to 100 basis points in 2021.

In the longer term, the deal will result in Visa playing a bigger role in the technology-driven development of the financial industry, Kelly said to the analysts. “We see that this will open up options and growth potential for us at least for the next decade,” he said.

Plaid in 2018 had conversations with Jack Dorseys Square Inc. on an acquisition that would have valued Plaid at approximately $ 1 billion. In early 2019, the company announced that it would buy one of its rivals, Quovo, for around $ 200 million.

Both Visa and Mastercard have tried to go beyond card payments in recent years to expand their rapid sales growth. Mastercard bought a Nets-owned payment platform for $ 3.2 billion last year, making the largest acquisition to date to make account-to-account payments.

Plaid has entered into data exchange agreements with major banks, including JPMorgan and Wells Fargo & Co., in recent years to clarify whether consumers should disclose their bank username and password for data exchange with financial applications.

Visa’s move follows a year of rapid consolidation in the fintech industry as old guard companies are increasingly trying to compete with fast growing startups. In November, PayPal Holdings Inc. bought the online coupon company Honey Science Corp. for $ 4 billion. Also last year, Charles Schwab acquired from TD Ameritrade Holding Corp. for $ 26 billion and Fiserv Inc.. Fidelity National Information Services Inc. and Global Payments Inc. has done a number of important transactions in payment processing.

The takeover of plaid by Visa – viewed by some fintech disruptors as part of the more traditional banking industry – will keep a close eye on Silicon Valley for signs of further consolidation. Monday’s announcement included comments from JPMorgan and PayPal welcoming the merger.

– Julie Verhage (Bloomberg)

– Jenny Surane (Bloomberg)

With the support of Anne VanderMey (Bloomberg)

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