Visa Buys Plaid: What Does It Mean?

Visa’s acquisition of Plaid represents a watershed moment for FinTech. As Visa’s second largest acquisition EVER, it is a clear testament to the rising importance of new FinTech players and capabilities. In the coming days and weeks, much will be made of the strategic value to Visa — and implications for its competitors. For us, as investors in platforms for FinTech, there are three key questions and take-aways:

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What does it mean for Visa?

Plaid will enable Visa to deepen engagement with non-bank financial services, develop new products, reinforce existing tokenization efforts, and push an international approach to alternative rails and open banking. The first is an acknowledgment of the increasing relevance of consumer FinTech as part of the broader financial services landscape and the need to engage this ecosystem beyond traditional issuing solutions. Lucien Foster, Global Head of Digital Partnerships at BNY Mellon, noted that “in many ways, Visa is buying a new business that will enable them to push more deeply into the FinTech ecosystem and expand into new product areas.”

Visa can probably also leverage its position with the banks to legitimize the portability of consumer banking data and scale a standardized set of API access permissions to a broad set of banks. This will likely accelerate the impact of open banking — not just within the United States but across all markets where Visa has issuer connectivity. Jeremy Kuiper, Head of Meta Ventures at Metabank and former EVP of Payments at The Bancorp Bank, highlighted that “this deal connects Visa to entities that it might not otherwise currently have a relationship with as well as future entities that will utilize Plaid. Plaid has been expanding internationally but Visa provides the platform to accelerate that in a major way.”

Access to account-level data can also enable Visa to expand its relevance to new segments and product areas — including capital markets, asset servicing, and wealth management.

With Visa increasingly exploring alternatives to traditional card rails, it will be interesting to see whether it will combine Plaid’s account-level visibility with other capabilities to expand the reach and scope of its network. Mark Goines, Vice Chairman of Personal Capital and advisor to FinTech pioneers like Betterment, Digit and Mint, sees that “Visa has recognized the importance and strategic value of Plaid’s mission to open access to financial data to reduce the friction in financial transactions.” In many ways, this positions Visa to further move beyond being an intermediary for card payments to becoming a foundational layer for financial data, transactions, and identity.

What does it mean for banks?

Visa’s ability to further scale Plaid will be a wake-up call for many banks and reinforce the need to develop a thoughtful response to the impact of consumer FinTech. This is not about any one start-up stealing share, but about the aggregate impact of all non-bank players that can build financial products through easy access to consumer account data and heldaway funds. As FinTech pioneer Pete Kight (Founder of CheckFree) puts it, “This transaction will be particularly helpful to traditional banking if it speeds the industry through their last phase of denial and they get on with it: focus on achieving the necessary level of digital competency to compete and win.” Banks will also have to consider the evolving position of Visa as a network not just for facilitating card transaction but a network for the movement of data — data will become increasingly tokenized and controlled by the entities issuing those tokens.

What does it mean for the FinTech market?

At $5.3Bn, Visa likely paid nearly 50x current revenues for Plaid. Along with PayPal’s recent $4Bn acquisition of Honey (reportedly at a 40x revenue multiple), this acquisition resets the valuation expectations for FinTech platforms and could signify the beginning of an arms race to acquire new capabilities. “We see this transaction as potentially the first domino to fall in a wave of consolidation of API-first, data rich companies with a proven track record of delivering value to customers in the heavily regulated financial services sector,” said Jonathan Price, SVP for Emerging Businesses, Corporate & Business Development at Q2. This arms race will impact any large provider of services and infrastructure to the financial services ecosystem. At a price that is greater than any currently public or previously acquired consumer FinTech venture, it also revisits the age old question of whether it’s better to sell shovels than mine for gold.

About Commerce Ventures

Commerce Ventures is a sector focused, early stage venture capital firm that invests in infrastructure and platforms for retail and financial services. Since inception, we have invested in 65 technology companies that serve retail, payments, banking, investing and/or insurance — including specific FinTech platform leaders such as Bill.com, BillGO, Forter, InAuth, Kasisto, Marqeta, MX, Socure, and Snapsheet.

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