The largest credit card provider continues to go beyond the traditional card swipe model with the rise of newer fintech options such as Venmo and Betterment.
V, + 0.37%
On Monday afternoon, the company announced that it plans to purchase plaid for $ 5.3 billion, including $ 4.9 billion in cash consideration and the rest in equity and accrued equity. With Plaid, which was valued at around $ 2.65 billion in a private round of financing at the end of 2018, individuals can connect their bank accounts to newer fintech platforms such as Mint, Acorns, and PayPal Holdings Inc.
Venmo and improvement.
The transaction, which is expected to close in the next three to six months, continues Visa's M&A kick after the company bought, among other things, cross-border service provider Earthport and Verifi to reduce chargebacks in 2019.
Visa has long been known as a card processor, but has recently referred to itself as a "network of networks". Instead of just connecting the players in the payment industry when someone wants to buy a card, Visa tries to open up newer financial markets. Technology experience, including providing a range of services to developers.
The company, according to its conference call following the announcement of the deal, is "increasingly trying not to focus on payments, but to focus on moving funds for any purpose." Visa calls Plaid "the premier financial data network in the United States".
Visa "essentially buys access to another network that connects Visa Direct, etc.," wrote Joseph Foresi, an analyst at Cantor Fitzgerald, referring to a product that allows users to send money through the Visa network, without having to pull out a piece of plastic or get into a card number. Visa Direct is currently the backbone of services that enable gig economy companies to pay their employees faster and peer-to-peer users to transfer funds to their bank accounts faster.
According to the Visa conference call, Al Kelly expects Plaid Visa to help expand its "high-growth financial data business" in the United States and expand overseas business. He also sees Plaid's technology as useful as Visa wants to take advantage of newer, non-card payments, including "real-time" money transfers and digital business-to-business transactions.
"This will help further reduce the company's dependence on the traditional transaction model," Wedbush analyst Moshe Katri said in an email to MarketWatch.
Card processing is a lucrative business for Visa and rival Mastercard Inc.
The two companies have considerable pricing power, which leads to strong margins, and the card giants are taking advantage of the opportunities in the service sector to tap additional sources of income and adapt to disruptive trends in the industry.
"Plaid has emerged as the clear market leader for the introduction of fintech. We believe that the Visa agreement not only enables the spread of finches, but also benefits from them in several ways," said Keefe, Bruyette and Woods analyst Sanjay Sakhrani ,
Visa expects Plaid to grow sales slightly in 2020 and 2021, provided the deal closes within the next few months while diluting earnings per share. Foresi called Plaid a "longer-term opportunity" for the company.
The plaid deal is proof that fintech companies still have an M&A appetite as the giants of the financial services industry look for new offerings to expand their arsenal. PayPal's $ 4 billion deal on the honey platform was completed last week. All eyes will be on whether Mastercard, which has made the largest acquisition in its history, will take another step.