By, Rowland Goddard
Is how we pay for goods and services changing? Conceptually, maybe not. However, now consumers have access to numerous methods to facilitate the payment of goods and services that didn’t exist even ten years ago. Fintechs like Plaid are changing the transaction process for the consumers of tomorrow.
Plaid provides integration between banks and fintechs. Currently, they are integrated with over 11,000 financial institutions. To use the popular investing app, RobinHood, a consumer needs to connect their bank account. How is this process done seamlessly and securely? Through the use of Plaid’s application program interface (API), RobinHood is able to access the consumers banking information instantly, rather than having to wait to contact the bank and receive their permission. Plaid, in a sense, is the middleman between your favourite app and your bank account.
Recently, Plaid was bought out by VISA for US$5.3 billion — twice as much as what venture capitalists valued them earlier in the year. This is likely just the beginning of large fintech acquisitions. In the first three quarters of 2019 alone, global investment in fintechs reached US$73.5 billion. VISA acquiring Plaid will likely set a trend for the coming years as fintech investment grows.
So, why did VISA pay a substantial premium to acquire Plaid? While VISA and Mastercard have a chokehold on the current network payment system, fintech companies continue to grow. Today, with nearly 60 fintechs valued over US$1 billion, the two payment giants may begin to worry about the sustainability of their dominance. Larger institutions are afraid of being pushed into the background because fintechs receive the primary interaction.There are roughly 15 times more fintech users in international markets versus the US. With the use of Plaids API’s, VISA hopes to target a wider array of consumers, thus protecting vulnerable market share.
Another reason behind this acquisition is to introduce VISA to the fintech environment. This acquisition will help create new connections with other fintechs and add developers to Plaid’s already best-in-class platform and team.
Finally, using Plaid’s software will facilitate the transfer and movement of money across VISA’s products. By acquiring Plaid, VISA has removed the middleman, which in turn will increase their brand awareness and secure a relationship with consumers in the future. This will help maintain VISA’s bottom-line and accelerate their long-term growth trajectory.
Future growth in international markets will likely be a significant determinant of the success of the Plaid acquisition. Fortunately for VISA, new regulations in the UK and across Europe will increase the ability for fintechs and financial institutions to share consumer data. This will allow VISA to use the acquired APIs from Plaid to integrate with British and European financial institutions.
In the coming years, it will become apparent how VISA intends to utilize Plaid’s assets and what direction it intends to take the company. More interesting, this acquisition could lead to new P2P and B2B services from VISA. How we pay for goods and services is changing, will VISA change with it?