Do young fintech startups stand a fighting chance against the time-tested traditional institutions? The recent Visa-Plaid acquisition means they might not have to.
Visa recently bought Plaid, a thriving fintech startup, for $5.3 billion. This sizable purchase price is over twice Plaid’s recent valuation of $2.65 billion.
While not a direct competitor, Plaid is deeply embedded in the financial services world, serving as a crucial partner for banks and fintech companies alike.
Well, What is Plaid?
Even though Plaid is a major financial services player, their platform isn’t used by consumers directly. Instead, Plaid has built partnerships with both banks and other fintech startups by allowing for a streamlined integration between the two. They’re the technology company that powers every financial services app, and have analyzed over 10 billion transactions.
As an API startup, Plaid provides developers at both banks and fintech companies with code. This code makes it possible for consumers utilizing financial technology to seamlessly link this tech with their bank account information.
One popular example is Venmo.
A popular app allowing consumers to quickly and easily send payments to each other, Venmo allows users to link their bank account information to draw and deposit money. Plaid makes this possible by providing a code that allows Venmo to access bank accounts without a hitch. In addition to banks, Plaid also develops APIs for other areas of the financial services industry.
Fintech Companies That Use Plaid
If you’ve utilized financial services apps that require bank account access, then you’ve probably taken advantage of Plaid’s API—without even knowing it.
Plaid’s APIs allow for integration between banks and nearly 11,000 different finance products. In addition to Venmo, which in April of last year, its owner PayPal revealed has 40 million users, Plaid also serves a number of other fintech giants, like:
- Transferwise: a bank transfer app that allows users to send money to bank accounts abroad with minimal fees
- Paysafe: an international payment solution app that allows businesses and consumers to send and receive money
- Current: a banking app featuring fast and simple ways to send money to friends, family, and businesses you frequent, with simplified statistics so you can understand your spending habits
- Simple: a banking app with smarter saving features, including expense tracking and savings goals
- Acorns: an investment app that automatically invests change from credit and debit card transactions with a diversified stock and bond portfolio
- Chime: a customer-focused banking app that never charges fees, allows you to receive direct deposit paychecks two days early, and pushes regular notifications about balances to keep you aware of your finances
WIth newfound support from Visa, Plaid will surely continue to grow their foothold in both the banking and financial services spaces.
How Plaid Scaled for a $5.3 Billion Acquisition
Before accepting their massive Visa acquisition deal, Plaid built up significant momentum. In fact, Visa wasn’t the first traditional financial institution to consider purchasing Plaid.
Back in 2018, Square, a fintech giant that simplified payment processing for small businesses, considered purchasing Plaid. However, at the time, the proposed number was only around $1 billion. Had it been finalized, Square would have cut competitors off while entering a new market.
In 2019, Plaid made significant strides outside its banking comfort zone and into the investment space by purchasing Quovo, a startup that aggregates investment data.
Plaid also gained significant amounts of capital in recent rounds of funding, including contributions from Visa.
How Does the Plaid Acquisition Help Visa?
As a multinational financial services company, Visa is naturally interested in controlling the technology that its competitors use.
Visa may not oust competitors who have enjoyed the benefits of this technology for years. However, they will now generate revenue from these partnerships.
According to the Visa Plaid press release, Visa taking ownership of Plaid also adds a much-needed layer of security. In a world rife with data privacy concerns, having Visa associated with the technology that protects this data integration may help both consumers and other companies to feel at ease.
From this perspective, the benefits of being a part of Visa will allow Plaid to reach broader horizons than ever before. In doing so, Visa will now play a pivotal role in empowering both its competitors and rising fintech startups.
What Does This Mean for Fintech?
This multi-billion dollar acquisition marks a significant moment in the fintech space.
When fintech companies hit the scene, consumers were disinterested and banks unintimidated.
As fintech companies prioritized both ease of use and the customer experience, they gradually built their market shares in lending, banking, and other sectors of the financial services industry. Now, people have started to notice the added value of fintech—including convenience, simplified access, and “touch of a button” transactions.
Consequently, the business world began taking fintech seriously. Fintech companies have taken on real investment, and onboard new companies faster than ever. They never lost sight of their primary goal: to make finance-related tasks, which are historically complex and difficult, simple.
By purchasing Plaid, Visa is legitimizing the once experimental fintech industry.
As this continues, fintech—which still has a futuristic ring to it—will become the norm. Traditional financial institutions like banks must either face the music and join the fintech herd, or accept defeat.
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