Visa will pay $5.3 billion to acquire Plaid, the fintech unicorn that gives finance apps data access and analytics, as major card networks fight to increase access to payments and technical infrastructure in a fast-changing, competitive environment.
Plaid is a seven-year-old software company that connects consumers’ bank accounts with fintech apps like Robinhood, Venmo, Coinbase, Credit Karma and Square. It currently has 200 million consumer accounts at some 11,000 bank and financial institutions (up from 9,600 a year ago) linked to 2,600 fintech products and apps; that’s compared to 129 million users in 2018 and 72 million the year before, according to Plaid.
The startup, most recently valued at $2.65 billion in its $250 million venture fundraise two years ago, will ideally put Visa in a better position to partner with fintech developers and expand its total addressable market, which spans banking and investing, lending, consumer payments, financial management and business services. Consumer adoption of fintech has grown 43 percent in the last four years, with 18 percent of internet-enabled users using at least one of these app in 2015 compared to 75 percent last year, according to EY.
“What Visa does today at a high level is about enabling commerce and connectivity,” said Peter Berg, vice president of business development and strategy at data security & compliance startup Very Good Security (and a seven-year Visa vet). “Visa has transcended this just-card model in recent years and rethought what it means to connect and transact; it’s not just about a piece of plastic anymore it’s about enabling different paths into payments and, increasingly, banking services.”
Visa probably doesn’t aspire to become a bank itself, but will continue to be interested in connecting consumers to lines of credit. While Visa and Mastercard may be two of the most trusted brands in financial services, they have historically deferred ownership of the consumer relationship to the banks that issue them credit cards.
Plaid comes to the forefront
In recent years, major banks like Chase and Wells Fargo have been in talks with major aggregators about whether there should be more standardization in data sharing and exchanging practices and how to educate consumers about the risks of giving away their bank passwords to access other apps. Perhaps the biggest thing to watch will be how Visa evolves Plaid’s practices; Visa wants to ensure fintech companies collect consumer data “appropriately,” company execs said on an analyst call Monday, which could be a lightning rod for banks.
“The biggest speed bumps Plaid has run into is they have by far the best, but still not a great, way of interfacing into bank accounts,” said Lisa Ellis, a senior equity analyst at MoffettNathanson. “From time to time, financial institutions raise concerns around the security protocols and methods by which Plaid accesses the underlying data in the bank accounts.”
“Visa will do a tremendous amount to improve the quality and credibility of Plaid’s interfaces with banks,” she added.
Visa has deep expertise with those types of connections. It already interfaces with banks the same way Plaid does – but for moving money rather than sharing data.
Plaid has built its financial data empire over seven years without most consumers even knowing about the company. It remains to be seen what the merger will mean for any potential direct-to-consumer offerings from Plaid. It currently has a little known data manager called My Plaid that lets consumers see which bank accounts they have linked to Plaid and which third-party apps can access their data, as well as an FAQ that describes how Plaid handles data and tells consumers how they can revoke or limit access to their data.
Wells Fargo customers have access to this feature, which the bank has branded as Control Tower in its app.
Before companies like Plaid and Quovo (which Plaid acquired last January) came along, “screen scraping” was the most common way for companies to access customer data. When consumers would log into apps with their bank credentials, the app would “scrape” their sensitive information and store it for re-use so it could log into the bank account as the customer and retrieve account data as necessary — making any possible breach of the fintech app a breach of the bank account.
Now, users of most fintech apps can authenticate and verify their identity with the same information entered through Plaid, which keeps it private and secure. Plaid has only recently begun showing its name on the authentication interface.
The acquisition is expected to close in three to six months. Plaid CEO and co-founder Zach Perret will continue to run the business, reporting to Visa Chief Product Officer, Jack Forestell.
“They share our vision for the future of financial services and have deep respect for the developer community we support,” Perret said of Visa in an announcement. “They want us to operate as an independent business unit… We’ll be able to lean on their brand, resources, and international footprint if doing so can benefit our customers, our partners, and the markets we serve.”
Plaid has raised more than $300 million to date from investors like Goldman Sachs, Citi Ventures, American Express and Kleiner Perkins.