What’s behind the Plaid-Visa deal?

 Sarah Kocianski photo
Sarah Kocianski Head of Competitor Strategy
5min read

11:FS Head of Research Sarah Kocianski tells you everything you need to know about the deal no one saw coming.

It’s official: Visa is buying Plaid, the San Francisco-based API developer, for $5.3 billion.

On one level, the deal comes as a surprise: it came with no warning and little advance speculation.

But the move does make sense. Visa participated in Plaid’s Series C funding round and maintains a minority stake in its (much smaller) competitor, TrueLayer.

The payments giant has clearly been looking into API companies, and that aligns with a broader goal: Visa intends to be the key infrastructure provider for the entire fintech ecosystem.

What this means for Visa

The payments industry has traditionally been Visa’s home turf. But lately, it has tried to move into fintech infrastructure through efforts like its Fast Track program, which helps fintechs start issuing cards within six weeks.

In this regard, they’re trailing the competition. Mastercard was the scheme of choice for early fintechs, and it already has its own API provision and aggregation platforms.

So Visa has some catching up to do. Luckily, Plaid can help.

Visa will need to bring [Plaid's] learnings, people and technology into the fold to get the most out of this deal

The deal offers plenty of enticements for Visa. It brings new talent to the company and should enable it to create products and services that benefit end users. In turn, that helps Visa’s overall growth strategy and creates new revenue streams for the company.

And it creates a pipeline to 11,000 banks and financial services companies – that’s a lot of customers and datasets that Visa can now access, along with information from Coinbase, Robinhood, Venmo and more.

It would seem Visa’s goal is to come up with new ways to make money in a newly emerging ecosystem while keeping pace with Mastercard. The Plaid acquisition should help them do both.

What this means for Plaid

Plaid is in a good place right now. It has attracted significant interest, developers love it, and the acquisition price was double the company’s last valuation in 2018.

So where do they go from here? Acquisitions of this size have the potential to get messy; Plaid does very well on its own, but Visa will need to bring its learnings, people and technology into the fold to get the most out of this deal.

With this acquisition, Visa understands that the industry’s underlying infrastructure needs to change...

That’s a hard task for a company as big as Visa, and the fact that Plaid is itself pretty large will compound the difficulty. How can Visa and Plaid become strong together without the former squashing the latter? That’s the big question going forward.

What this means for fintech

Plenty of digital ink has been spilled about the amount of money involved here, but compared to something like FIS’s $43 billion WorldPay acquisition, this isn’t actually that big. Instead, the Plaid-Visa deal is exciting because it signals a priority shift in finance more broadly.

So far, most of the innovation in the industry has involved putting new interfaces on existing technology. With this acquisition, Visa understands that the industry’s underlying infrastructure needs to change, and it’s using new technology to do it.

The end result will be better products for both consumers and businesses. And that has the potential to benefit not just Visa and Plaid, but the industry as a whole.