Visa takes an epic leap into fintech – will acquire Plaid for $5.3bn

In a surprise announcement yesterday, payment processing giant Visa revealed it is acquiring fintech unicorn Plaid for an eye-watering $5.3bn.

In the first milestone acquisition of the year, Visa’s plans to scoop up Plaid will likely mark the start of many such deals to follow.

As traditional finance struggles to keep up with more agile and user-friendly fintech products, more consolidations of this style are surely on the horizon.

Plaid acquisition ‘enhances the growth trajectory’ of Visa

Speaking on the deal, CEO and chairman of Visa Al Kelly enthused:

“We are extremely excited about our acquisition of Plaid and how it enhances the growth trajectory of our business.”

The news came to light yesterday and the deal is expected to close within three-to-six months, pending regulatory approval.

“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,” Kelly added.

Plaid and the global fintech market

The global fintech market was valued at about $127.66bn in 2018. It is expected to reach as much as $309.98bn at a compound annual growth rate of 24.8% through 2022.

As Morgan Creek Digital co-founder Anthony Pompliano points out, with such a powerful growth trajectory, incumbents can no longer ignore fintech. They will either have to acquire more agile firms or wait to be put out of business.

With more than 20 million consumer accounts as of 2018, Plaid allows users to connect their bank accounts easily to apps like Venmo.

This means that users can share their financial information more conveniently. Plaid also serves several cryptocurrency businesses, including Coinbase and Abra.

According to a company presentation, Visa will pay some $4.9bn in cash for the acquisition and $400m of retention equity and deferred equity.

This is significantly higher than the most recent Plaid evaluation, which was set at $2.65bn. Kelly stated:

“The combination of Visa and Plaid will put us at the epicentre of the fintech world, expanding our total addressable market and accelerating our long-term revenue growth trajectory.”

If all goes according to plan, the acquisition will allow Visa to accelerate its revenue growth between 80-100 BPS in the 2021 fiscal year.

Interestingly, both Visa and Mastercard had invested in Plaid recently, although the amounts were undisclosed. However, the fintech unicorn has raised more than $350m in venture capital funding to date.