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Jan 13, 2020

Visa to buy Plaid for US$5.3B in bid to reach startups

Visa Inc. credit and debit cards Photographer: Andrew Harrer/Bloomberg

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Visa Inc. grew into one of the world’s most valuable financial companies by serving as the pipes that help connect banks and merchants.

Now, it’s making a major bet on doing the same for data between banks and financial startups.

Visa agreed to pay US$5.3 billion for Plaid, a fintech firm that connects popular apps like Venmo to customers’ data in the established banking system. The deal caps a meteoric rise for Plaid and aims to keep fueling Visa’s own ascent, which has seen its stock triple in the past five years. The sale price is double Plaid’s US$2.65 billion valuation in a 2018 funding round.

Plaid’s developer tools help power a range of popular financial apps, including Venmo, Coinbase Inc. and Acorns Grow Inc. It channels the banking data that such ventures need for their apps and websites. Founded in 2012, the firm now has more than 200 million accounts linked on its platform, according to an investor presentation. That access underscores the mounting demand from consumers to send their financial data to other services -- such as apps that move funds between accounts or into cryptocurrencies, give advice on personal finances or reimburse a friend after brunch.

About a quarter of people with a U.S. bank account have used Plaid to connect to the roughly 11,000 financial institutions it works with, the companies said.

“We don’t see changing Plaid’s model, we see helping them accelerate their growth,” Visa Chief Executive Officer Al Kelly said on a conference call. “As the fintech evolution and boom continues to take off I think it’s important for us to be more front and center on that.”

Consolidation Wave

Plaid has attracted investments from Goldman Sachs Group Inc. and venture capitalist Mary Meeker. Visa and Mastercard Inc. also are investors in the company, Plaid said last year in a blog post. Visa said it expects the takeover to close in the next three to six months.

In 2018, Plaid had talks with Jack Dorsey’s Square Inc. about an acquisition that would have valued Plaid at about US$1 billion. In early 2019, the firm announced that it was buying one of its competitors, Quovo, in a deal valued at about US$200 million.

Both Visa and Mastercard have been seeking to move beyond card payments in recent years to extend their rapid revenue growth. Mastercard bought a payments platform owned by Nets for US$3.2 billion last year, using its biggest-ever acquisition to move further into so-called account-to-account payments.

Plaid has struck data-sharing agreements with major banks including JPMorgan Chase & Co. and Wells Fargo & Co. over the past few years, seeking to head off battles over whether consumers should give up their bank username and password to share data with financial applications.

Visa’s move follows a year of frenzied consolidation in the fintech industry, as old-guard companies increasingly seek to compete with fast-growing startups. In November, PayPal Holdings Inc. snapped up online coupon company Honey Science Corp. for US$4 billion. Also last year, Charles Schwab acquired of TD Ameritrade Holding Corp. for $26 billion, and Fiserv Inc., Fidelity National Information Services Inc. and Global Payments Inc. did a series of major deals in payment processing.

Plaid’s takeover by Visa -- seen by some fintech disruptors as part of the more traditional banking industry -- will be watched closely by Silicon Valley for any signs that more consolidation is coming. Monday’s announcement included comments from JPMorgan and PayPal welcoming the merger.