The emergence of names like Betterment and Venmo is giving Visa Inc - the biggest name in credit cards - a strong reason to shift beyond the old-school practice of card-swiping.
On Monday afternoon, Visa Inc. announced that it plans to buy out financial-technology upstart Plaid for $5.3 billion. The proposal will include nearly $5 billion in cash consideration, while the remaining options are in equity deferment and retention.
The acquisition, which is expected to be sealed in the next three to six months, continues Visa's push for mergers and acquisitions, following a busy 2019 in which, among others, the company acquired Earthport cross-border services company and Verifi's charging reduction business.
Plaid, valued at approximately $2.65 billion in a private funding round, allows individuals to connect their bank accounts to new fintech platforms including Paypal, Acorns, Venmo and Betterment.
Visa Inc has long been known as a card processing company, but it has recently been referred to as a "network of networks." Instead of simply connecting payment industry players when someone wants to purchase a card, Visa is trying to explore new financial technology experiences, including providing developers with a vast suite of services.
According to its conference call following the deal announcement, the firm is increasingly trying to move from being solely focused on payments to being focused on moving funds for whatever reason. Plaid has been labeled by Visa as the leading financial data network in the country.
Visa is essentially buying access to another network from which Visa Direct can be linked, wrote Joseph Foresi, analyst of Cantor Fitzgerald, referring to a program that allows users to send money over Visa's network without taking out a piece of plastic or entering a number. Visa Direct is currently a backbone of services that allow gig-economy businesses to pay their workers more efficiently and on time.
Visa Chief Executive Al Kelly expects Plaid to help their company expand its "high-growth financial data network business" in the US and expand that business overseas. Kelly also sees Plaid's technology to come in handy as Visa seeks to take advantage of the newer payment flows that do not use cards.
The processing of cards is a lucrative business for Visa and its rival Mastercard Inc., where the two firms have tremendous pricing power contributing to high margins.
Visa and Mastercard have turned to service opportunities as a way to add additional revenue streams and comply with emerging industry trends.
