With Plaid Acquisition, Visa Makes a Big Play for the ‘Plumbing’ That Connects the Fintech World

In late 2018, payments giants Visa and Mastercard both invested in fintech startup Plaid through a $250 million funding round that valued San Francisco-based firm at an impressive $2.65 billion.

Described as “strategic investments,” the two financial services heavyweights sought not only to provide Plaid with financial backing, but also to leverage the fintech firm’s sprawling technological capabilities to improve their own services.

“We’re really excited about working with [Plaid] to enhance payment experiences globally,” Bill Sheedy, executive vice president of Visa’s strategy group, told Fortune at the time.

With Plaid’s APIs (application programming interfaces), Visa could potentially improve the customer experience via everything from fraud detection to real-time account balance verification—services that “reduce the friction around financial transactions,” as Sheedy put it.

A little over a year later, Visa has decided to come back for the whole thing.

Whether it beat its great rival Mastercard to the punch, or saw a deal that its East Coast rival did not see, is as yet unclear. But on Monday, Visa announced that it has agreed to acquire a 100% stake in Plaid in a deal valued at a whopping $5.3 billion (twice the firm’s late-2018 private valuation). 

The transaction sees Visa snap up one of the more impressive growth stories in the ever-expanding realm of financial technology. Since launching in 2013, Plaid has made itself an indispensable piece of the fintech ecosystem—a company with the technological capabilities to connect one in four people with a U.S. bank account to thousands of apps and services, from Venmo to Robinhood, from Chime to Acorns.

Plaid likes to describe itself as the “plumbing” that makes the increasingly tech-enabled financial services world go round, a claim justified by the company’s already sizable reach. Given the eye-watering sum that Visa is prepared to fork over—not to mention the bullish noises coming out of the company’s C-suite on Monday afternoon—it’s clear that the payments behemoth believes it is picking up an asset that will help it “capitalize on the fintech-driven evolution,” as Visa CEO Al Kelly put it.

“Fintechs are clearly reshaping financial services, and Plaid is unquestionably the leader in this space,” Visa president Ryan McInerney told Fortune on Monday. The deal is about expanding Visa’s services beyond its bread-and-butter, debit and credit card solutions and into a “broader set of money-movement services,” as McInerney described it. 

While Visa may have 3.4 billion debit card holders globally, the acquisition of Plaid—a company that holds the keys to countless fintech services that promise to increasingly shift online the way that people move and spend their money—provides the credit card giant with access to “new products and services in a higher-growth market than we are in today,” McInerney said.

According to EY, 75% of the global consumers accessed a fintech application for money transfers and payments last year, compared to only 18% in 2015. “It’s something that positions Visa for the next decade and beyond,” McInerney added.

Visa CEO Al Kelly echoed that sentiment on Monday, saying on a conference call that the acquisition “places Visa on a higher growth trajectory” in the years to come. Parlaying Plaid’s technology on a global scale, Visa aims to deploy the startup’s technology to flesh out its “non-card and [real-time] payments” services and gain exposure to “open banking” capabilities that have grown increasingly prevalent, particularly overseas. 

“We are increasingly trying to move from being strictly focused on payments, to being focused on the movement of funds for any purpose around the world,” Kelly said, citing Visa’s acquisition of cross-border payments firm Earthport last spring as another example of the company’s strategy. “As big as Visa is in terms of the bank accounts that we can reach, we’re not as big as we need to be if we want to be a formidable player in money movement around the world.”

As for Plaid, the monetary benefits of the deal for the company, its founders and its investors are fairly obvious. But beyond financial considerations, Plaid co-founder and CEO Zach Perret noted Monday that the acquisition provides “a way to continue to expand, particularly in a lot of new international markets where we don’t have a presence… We think we can do more, and faster, which is where Visa comes in.”

Above all else, the transaction is a statement of intent on Visa’s part—one that shows the company doesn’t plan to sit on the sidelines as a wave of tech-fueled innovation promises to disrupt the financial services industry across the board, from banking to payments to point-of-sale transactions. 

It also serves as a warning shot to its longtime rival at Mastercard, which has pursued its own array of forward-thinking acquisitions and new business lines meant to expand its services beyond mere cards and payments. (Representatives for Mastercard declined to comment.)

It appears that the two payments heavyweights have entered the 2020s in the throes of a great fintech arms race—one that shows no signs of abating.

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