Visa Inc. recently agreed to a $5.3 billion definitive agreement to acquire Plaid, a network designed to allow people to securely connect their financial accounts to apps used to manage finances offered by providers in the U.S., Canada and the United Kingdom.
Moody’s rated the acquisition as credit positive, given that it provides Visa with “a scaled leading central position between financial institutions and fintech applications for the open banking ecosystem.” Moody’s further noted that such a position is similar to Visa’s current central position in consumer-to-merchant (C2M) payments.
“While Visa’s core C2M payment processing business possesses a particularly wide competitive and structural moat, open banking may be disruptive over the long run depending on regulatory and technological developments,” Moody’s reported. “From the credit perspective, this early proactive investment in a leading platform to position Visa for the evolution of open banking is a beneficial use of the company’s financial flexibility.”
With that in mind, Moody’s further noted that the extent to which Visa’s strategy is successful will depend on the company’s ability to replicate Plaid’s position in additional countries, particularly in Europe, where ecosystem participants and national governments might be less receptive to the platform’s integration.
“We are extremely excited about our acquisition of Plaid and how it enhances the growth trajectory of our business,” Visa CEO and Chairman Al Kelly said in the release. “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.”
Moody’s also pointed out that the acquisition significantly expands Visa’s already large “addressable market opportunity” and provides the company with a “vital enabling position” in the strongly growing financial technology landscape.
“This acquisition is the natural evolution of Visa’s 60-year journey from safely and securely connecting buyers and sellers to connecting consumers with digital financial services,” Kelly said. “The combination of Visa and Plaid will put us at the epicenter of the fintech world, expanding our total addressable market and accelerating our long-term revenue growth trajectory.”
About 80 percent of leading fintech providers use Plaid’s products enable consumers to authorize specific third-parties to access their financial information with apps and services such as Acorns, Betterment, Chime, Transferwise and Venmo, Moody’s noted.
“Plaid’s mission is to make money easier for everyone, and we are excited for this opportunity to continue delivering on that promise at a global scale,” Plaid CEO and co-founder Zach Perret said in the release. “Visa is trusted by billions of consumers, businesses and financial institutions as a key part of the financial ecosystem, and together Visa and Plaid can support the rapid growth of digital financial services.”
One in four people with a U.S. bank account have used Plaid to connect to more than 2,600 fintech developers across more than 11,000 financial institutions, according to the analytics firm.
“We believe Visa’s acquisition of Plaid is an important development in giving consumers more security and control over how their financial data is used,” JPMorgan Chase co-president and CEO of Consumer and Community Banking Gordon Smith said. “Protecting customer data and helping them share that information safely has long been a top priority for Chase. We look forward to partnering with Visa to continue building a great experience for our shared customers.”
Visa noted that 75 percent of the world’s Internet-enabled consumers used a fintech application to initiate money movement in 2019 versus 18 percent in 2015, in a press release. Plaid has been a leader in enabling this connectivity at scale.
Once closed, the combination of Visa and Plaid is expected to provide significant benefits to developers, financial institutions and consumers.
The transaction is expected to close in the next three to six months, subject to regulatory approvals and other customary closing conditions, the release notes. Visa will pay $4.9 billion in cash and $400 million in employment retention equity. The company noted that the transaction will not impact Visa’s previously announced stock buyback program or dividend policy.