Visa drops $5.3 billion on Plaid in bid to future proof itself

Financial services giant Visa is acquiring fintech app enabler Plaid in an apparent bid to ensure it doesn’t get left behind in the app economy.

Despite the $5.3 billion price tag, few people will have heard of Plaid. That’s because its sole function is to act as the plumbing in linking together apps with bank accounts, mainly in the US. It’s easy to assume that Visa and Mastercard already controlled nearly all of this but it seems not, with a quarter of Americans using Plaid to link their bank accounts with apps such as Venmo.

“We are extremely excited about our acquisition of Plaid and how it enhances the growth trajectory of our business,” said Al Kelly, CEO of Visa. “Plaid is a leader in the fast growing fintech world with best-in-class capabilities and talent. The acquisition, combined with our many fintech efforts already underway, will position Visa to deliver even more value for developers, financial institutions and consumers.

“This acquisition is the natural evolution of Visa’s 60-year journey from safely and securely connecting buyers and sellers to connecting consumers with digital financial services. The combination of Visa and Plaid will put us at the epicenter of the fintech world, expanding our total addressable market and accelerating our long-term revenue growth trajectory.”

“Plaid’s mission is to make money easier for everyone, and we are excited for this opportunity to continue delivering on that promise at a global scale,” said Zach Perret, CEO and co-founder of Plaid. “Visa is trusted by billions of consumers, businesses and financial institutions as a key part of the financial ecosystem, and together Visa and Plaid can support the rapid growth of digital financial services.”

Visa and a bunch of its competitors were early investors in Plaid, so it seems to have the blessing of the financial services establishment. It looks like the price paid was around double the valuation implied by Plaid’s last round of funding, so Visa had to compensate its peers generously to have it all to itself. Investors didn’t seem that bothered either way, however, with Visa’s share price barely acknowledging the news. Here’s a slide from Visa’s presentation summarising the thinking behind the move.

Thiel’s new investment demonstrates the importance of security

Valar Ventures, the venture capitalist firm run by Peter Thiel, has pumped an additional $30 million into Petal, a credit card company which vets individuals’ digital-self during applications.

As a business, Petal is certainly an interesting one. Most credit companies assess an individual’s credit history before agreeing to lend any cash or offer financial products, however this potentially creates a problem; how do people get credit when they’ve never had it? The most fiscally responsible person might not be able to get a loan because they have not applied for credit services in the past.

Instead, Petal using various artificial intelligence applications to assess an individual’s digital financial profile, not simply a credit score. This is likely to give a much more complete picture of said person as it assesses the flow of cash in and out of the persons life. In theory, some people who have been turned down credit would now be applicable.

Although this idea is not necessarily mainstream, the concept is not new. Orange is another example of a company which is taking an alternative approach in finance. Using data collecting through its core telco business, the new banking venture can paint a picture of customers. For example, the ability to consistently pay mobile phone or broadband bills on time and in full, could contribute to understanding the risk associated with an individual applying for a personal loan.

Of course, an idea is only good as its success, and Petal has had a strong start in the FinTech world. There are currently more than 100,000 potential applicants, users who signed up during the beta test, while this $30 million fuel from Valar Ventures is the second funding round. Thiel’s firm also led the company’s $13 million series A round last year. With the new cash Petal’s CEO Jason Gross hopes to expand the customer base, hire new talent and bring new features to the product.

“Over the past two years, we’ve focused on building both an amazing team and a special product,” said Gross. “Now, with new funding and new leaders onboard we’re ready to meaningfully scale our business and team. We’re thankful for the support of our investors and partners and look forward to helping millions of people build credit with Petal.”

But over to the security element. This is where security breaches could start to make an impact on the world. The more personal information on an individual which is cruising the digital highways, the greater the likelihood of identity fraud. The world might be suffering from a bit of data-breach fatigue, but many are ignoring the issue because there hasn’t been any significant consequence.

As soon as stories about identity theft start emerging, the world will become much more aware and sensitive to the threat. In this case, when Petal is assessing the worthiness of a person the AI might come to some incorrect conclusions. We’re really starting to use this data effectively and now we just need to be sure we can protect it.

As an industry, it is important that this point is never realised, but this means proactive investment in security research and products. Security cannot no longer be considered an afterthought or a bolt-on as the implications are starting to become real. As long as Joe Bloggs is living in ignorance of the dangers of the digital economy, the industry is doing its job.

Innovating change: How FinTech and Blockchain will impact the mobile market periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Freelance Technology Journalist Kate O’Flaherty argues that value added services are the key to new revenue streams for mobile operators and MVNOs.

At a time when margins are under increasing pressure, operators and MVNOs are looking to recoup revenues through value added services. An area offering growing potential is the technology enabled by the financial sector – including micropayments, loans and even full banking services.

Indeed, Orange Bank, launched in November 2017 following the operator’s purchase of a 65% stake in Groupama, is an interesting example of a mobile operator entering the FinTech space. The operator’s online banking unit, which is targeting two million customers, had already reached 50,000 users by the end of last year.

“This is the chance for Orange to get into a new area,” says Kester Mann, Analyst at CCS Insight. “Their target is everyone, but the service will be attractive to the young market who have been brought up with mobile and would trust them”.

It is with this in mind that financial services are also being offered by MVNOs. Take, for example, the GiffGaff game plan in partnership with peer-to-peer lending platform RateSetter, which offers financial services to its users. In addition, ethnic MVNOs such as Lebara offer money transfer services to customers.

Going one step further, there is also the potential for banks to start their own MVNOs. It has been rumoured that Standard Bank in South Africa is poised become the second bank in the country to launch an MVNO after FNB Connect entered the market in 2015.

Indeed, there are already MVNO banks in Africa and others are planning to enter the space, says Ian Streule, Partner Consulting at Analysys Mason. “They know this gives them a way of offering financial services to users through the end device, benefitting from security and authentication through a mobile. MVNOs are good at innovating and creating new services”.

This is especially relevant in emerging markets, according to VP Marketing at Juvo, Jacquie Amacher: “Subscribers in cash-based societies who lack access to formal credit can instead use financial services through their mobile provider.

She points out: “Mobile service providers are uniquely positioned – they have the distribution to provide access. It’s about creating an identity-based relationship and moving them up the pathway to financial inclusion by offering them mobile financial services for the first time.”

By providing ongoing access to otherwise unattainable mobile financial services, MVNOs can boost engagement, dramatically reduce churn and increase average revenue per user (ARPU), says Amacher.

Blockchain in Mobile

At the same time, the technology commonly known as the distributed ledger that enables cryptocurrencies such as Bitcoin, blockchain offers further potential for both mobile operators and MVNOs.

For example, Deutsche Telekom’s recently-launched City Pass is based on blockchain technology. Replacing the membership passes usually found in someone’s wallet, City Pass can be used via a smartphone app or physical card.

More broadly, blockchain can be built into a variety of mobile apps. At the same time, the technology has the ability to improve internal efficiencies including operator to MVNO wholesale billing and cyber security.

According to experts, the application of blockchain is in its early stages, with most mobile players merely considering the technology and working out what it can do. But there is much more to come as the area matures.

Csilla Zsigri, Senior Analyst, Cloud Transformation and Blockchain at 451 Research explains: “Blockchain can be built into all sorts of mobile apps, from financial to public services and retail. One use case is where people without bank accounts can make mobile payments using apps”.

“Another example would be to have a network that verifies your identity using a mobile app –  your identity data is on the device itself –  and this can be used for services such as getting a driving license or opening a bank account”.

VP of product management at Juvo, Jason Robinson agrees, saying: “Emerging solutions around decentralised, digital identities provide a path for those who lack a formal financial identity to gain access to a broader set of services”.

Meanwhile, says Zsigri, airlines are working on blockchain-based mobile loyalty apps as part of a digital wallet. She adds: “Even blockchain powered app stores are being talked about.

AppCoins is an app store protocol under development that aims to power advertising, in-app purchases and app approval with blockchain technology. It ultimately acts as a medium of exchange between developers and end users”.

MVNO and Mobile Operator Solutions

Taking this into account, Garry Partington, CEO of Apadmi thinks Blockchain will offer multiple additional use cases to both operators and MVNOs. He cites the example of an MVNO solution for removing international call and data roaming charges.

In addition, according to Partington, there is potential for products offered by blockchain-based solutions such as Ethereum, which allow for the distributed exchange of ‘smart contracts’.

He explains: “A smart contract is a piece of software that’s run as part of a transaction in a distributed computing environment. It works by validating the transaction and storing the record on the open ledger, in a ‘block’. When a block is full, a new one is created, and they’re chained together through a link – creating a blockchain”.

So how does that translate into a real-life use case? Global Security Strategy and Blockchain Leader at Aricent, Shaan Mulchandani says: “The smart contract aspect of blockchain can be used to establish and validate wholesale billing rates between operator and MVNO”.

It is true to say blockchain has huge potential, but the technology is still very new. In contrast, the impact of financial services on MVNOs and operators is already starting to be felt.

For now, according to Andy McDonald, VP, Merchant Retail EMEA, ACI Worldwide: “The most innovative convenience-enhancing solutions are the ones that connect the dots quickly, particularly between customer and payment. Think peer-to-peer transfers via Facebook chat, or the millions of Chinese WeChat and Alipay users who pay for products by scanning QR codes from newspapers, online adverts or smart TVs”.

He advises: “To make the most of opportunities, telcos need to position themselves as the hub of the emerging digital marketplace: As an integrator for devices, applications, methods of mobile payment and customer identity management”.


Join us at the MVNOs World Congress 2018 in Madrid, 23 – 26 April, and hear from the industry leaders, including Andy McDonald and Ian Streule, on how FinTech and Blockchain will impact the MVNOs market.