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.

Libra partners stampede for the exit

Visa and Mastercard are among a group of partners in Facebook’s Libra cryptocurrency venture to decide the whole thing is too risky.

It has been widely reported that internet payment platform Stripe and consumer trading site eBay have also bailed on the project, following PayPal’s decision to step away last week. The general theme of the reasons they give for pulling out is that they still like the concept, but the regulatory heat they’ve all been getting the project was unveiled is just too rich for their blood.

A couple of other factors, on top of the precedent set by PayPal, seem to have influenced the timing of the decision. The Verge reports that Visa, Mastercard and Stripe all got letters from a couple of US Senators last week, warning them of severe regulatory con sequences if they continue with Libra. In addition there’s a Libra meeting today, in which partners are supposed to formalise their commitment to the project, they were compelled to make a choice one way or the other in advance of it.

“Facebook appears to want the benefits of engaging in financial activities without the responsibility of being regulated as a financial services company,” said the most ominous part of the letters. “If you take this on, you can expect a high level of scrutiny from regulators not only on Libra-related activities, but on all payment activities.”

Having the two dominant global financial services providers pull out is obviously pretty bad news for Libra. It now faces the task of convincing them the threatened regulatory Armageddon won’t come to pass, which won’t be easy. David Marcus, one of the founders of the project, attempted damage limitation on Twitter, but all eyes will be on the outcome of today’s meeting.