How Visa’s Post-Card Payments Ambitions Led It to a $5.3 Billion Deal for Plaid
How Visa’s Post-Card Payments
Ambitions Led It to a $5.3 Billion Deal for Plaid
The deal,
which Visa expects
will close within the next three to six months, brings the world’s largest
card-payments network closer to its ambition to facilitate “the movement of
funds for any purpose around the world,” according to Visa chief executive
Alfred Kelly, who discussed the transaction during a conference call late
Monday afternoon.
But the
deal also represents a big bet on a “network-of-networks” strategy Visa has
pursued recently that involves closer cooperation, rather than rivalry, with
the digital startups whose businesses require access not just to consumers’
credit and debit cards but to their ultimate source of funds. The deal for
Plaid is a “very important acquisition. Their solution will allow Visa to
address [real-time payments] for any number of use cases,” says Patricia
Hewitt, principal at PG Research & Advisory Services, a Savannah, Ga.-based
consultancy, in an e-mail message.
That
funding access is what San Francisco-based Plaid enables for a range of
companies, many of which didn’t exist a decade ago, including fintechs like
Acorn, Betterment, Chime, and Square, as well as Stripe and Venmo, a unit of
PayPal Holdings Inc. And Plaid’s network is growing fast. It provides bank
connections for more than 200 million users of these apps, up from 129 million
a year ago. Indeed, that number has grown at a 115% average annual rate since
2015. With these links under its tent, Visa can “deliver payments initiation to
developers globally for non-card [payments] and [real-time] payments,” Kelly
said.
But
buying Plaid could make sense just from the point of view of the rapid
development of the market the company operates in. Globally, 75% of the world’s
consumers who have an Internet connection are using a fintech app, according to
numbers provided by Visa. That’s up from just 18% four years ago. Plaid alone
links more than 2,600 fintech developers to
more than 11,000 companies in the banking and financial-services sectors.
“The
fintechs’ connection with any network came primarily if they offered a product
that could be used at the point of sale. This acquisition would give Visa the
opportunity to engage with the fintech market in addition to the card-payment
rails,” notes Ben Jackson, chief operating officer at the Innovative Payments
Association, Washington, D.C., in an email message.
Opportunities
like that haven’t escaped the notice of either of the country’s largest
payments networks. “This acquisition by Visa, while significant, continues a
well-established trend,” says Tim Sloane, vice president of payments innovation
at Mercator Advisory Group, a Marlborough, Mass.-based consultancy, in an email
message. “Both networks are positioning themselves as providers of a wide
portfolio of bank products, not surprisingly aligned with payments and managed
access to bank data.”
Visa
clearly expects a big dividend on this latest investment. Officials said Monday
the company will pour resources into expanding Plaid’s reach internationally in
an effort to globalize its base of fintechs and banks. That may take some time,
but Visa projects Plaid will add anywhere from 80 to 120 basis points to its
revenue growth rate as soon as 2021. “We intend to invest heavily in the early
years to expand internationally,” noted Vasant Prabhu, Visa’s chief financial
officer, during the Monday presentation.
But for
all that potential, the Plaid deal wasn’t swaying investors one way or the
other Tuesday. At mid-morning, Visa’s stock was trading at nearly $196 per
share, up less than 0.50%.
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