VISA

Visa’s $5.3B FinTech Play, Wrapped In Plaid

Call it an expansion of the Visa network-of-networks model. As reported on Monday (Jan. 13), Visa said it will buy Plaid — which focuses on the development of application programming interfaces (APIs) that allow consumers to share their data with thousands of apps — for $5.3 billion.

On a conference call with investors following the announcement, Visa CEO Al Kelly said that “Plaid opens up new market opportunities by significantly expanding Visa’s network capabilities,” adding that Plaid provides “a terrific platform for extending” Visa’s integrated payment solutions and value-added services.

Visa, management said on the call, will capitalize on what was termed a FinTech-driven evolution that is currently shaping financial services, as well as growing Visa’s core payments business. In terms of mechanics, the acquisition — which involves a cash payment of $4.9 billion, with the remainder tied to deferred equity and retention equity — is slated to close within three to six months, assuming regulatory approval.

It’s not the first go-around between Visa and Plaid, considering that the payments giant participated in a funding round at the end of 2018 for $250 million, and valued Plaid at a reported $2.6 billion.

The deal is only the latest salvo and nod to the importance of data access and connectivity across traditional financial institutions and FinTech upstarts. In one recent example from late last year, The Clearing House released a template designed to help banks link with FinTech firms, and connect to APIs.

Delving Into The Numbers

In supplemental materials and commentary provided on the Visa/Plaid call, Visa noted that as many as one in four U.S. bank account holders have used Plaid’s offerings. That activity comes against a larger backdrop where FinTech is gaining ground.

The money movement? Well, that’s a factor that plays deeply into Visa’s decision to buy Plaid. However, as Kelly said on the call, the deal helps Visa expand beyond payments, and boost its role as what has been called (on the most recent call, and in the past) a “network of networks.”

Connectivity between banks and developers has become critically important in a many-to-many model. Providing that connectivity through the Plaid deal will enable Visa to partner with a range of fast-growing FinTech firms, said Kelly, partly through developer services that Visa does not provide at present.

He added that there will also be the opportunity to enhance services and products for overseas clients, especially those located in Open Banking markets. Kelly said that consumers would be at the center of managing their data, as well as how and where that data is used (Plaid offers tools tied to establishing authentication and user consent).

Plaid’s Scale

In data illustrating Plaid’s scale and reach, management from the two companies said that Plaid connects more than 11,000 banks and financial services companies, as well as more than 2,600 FinTech firms, and touches more than 200 million accounts globally. The compound annual growth rate (CAGR) of accounts linked to Plaid has measured 115 percent since 2015.

According to figures cited by Visa, 75 percent of “internet-enabled” customers around the globe have used a FinTech product and service — such as those from Acorn, Betterment, Venmo and others — to move money between accounts. That’s up from 18 percent in 2015.

The company also operates in Canada and the U.K., and is in beta in Ireland, France and Spain.

With a focus on connectivity and networks, said Plaid Co-founder and CEO Zach Perret on the call, Visa and Plaid “share similar business models.”

The Roadmap

The deal will be positive for Visa in a number of ways, according to Kelly, who cited the expansion of a new, high-growth financial data network in the U.S., focused on FinTech developers and Visa’s bank partners. The data network will be broadened to international markets, he added, noting that “we will deliver payment initiation and value-added services to FinTech developers globally for non-card and [real-time payments], which will also be a significant accelerator for our Visa Direct and Open Banking efforts.” In addition, the core business will get a leg up on growth with new payments, money movement and value-added services.

Visa CFO Vasant Prabhu said the deal will be accretive to revenues from the beginning. Assuming an April 2020 close, Plaid will boost Visa’s top-line growth in the current fiscal year by roughly 30 to 40 basis points, and between 80 to 100 basis points in the subsequent fiscal year of 2021.

Prabhu added on the call that the deal will accelerate the growth of products tied to Earthport and Visa Direct, as well as help capitalize on B2B and cross-border opportunities. In terms of cross-pollination, he noted that Visa can, in turn, accelerate Plaid’s global expansion. Furthermore, Visa intends to spend heavily in the early years to sustain Plaid’s current momentum.

In a Q&A session on the call, Kelly said that the core strategy remains to move beyond payments, and enable the movement of funds in any setting around the world — even if the first and last mile of the money movement occurs on a network other than Visa’s.

“Visa, at its core, is a network provider,” said Kelly. “Increasingly, we are a network of networks, and the [FinTech firms] require a network to connect them to financial institutions.”

Later in the call, he added that “this acquisition will position Visa as a trusted facilitator of financial data connections between consumers, their financial institutions, and third-party apps and service providers.”

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