Fintech Competition Intensifies: Visa's Purchase of Plaid (January 2020 Update)
In the ever-evolving world of finance, recent developments have seen traditional players and newcomers alike vying for dominance. One such significant move was Visa's acquisition of Plaid, a deal that signified a strategic shift in the digital payments landscape.
Visa, the global leader in digital payments, sought to neutralize a competitive threat to its important US debit business by acquiring Plaid, treating the acquisition as an "insurance policy" against emerging fintech disruptions. Plaid's technology platform enables apps to connect with users' bank accounts directly, powering a wide range of fintech and digital finance applications. This capability makes Plaid a critical player in financial data aggregation and fintech infrastructure.
Beyond defensive motives, Visa aimed to leverage Plaid’s technology and network to accelerate innovation and scale operations in the financial technology space. Plaid’s platform provides Visa with enhanced access to a broad fintech ecosystem and valuable consumer banking interaction data, potentially strengthening Visa’s offerings and market positioning.
However, the deal was abandoned after the U.S. Department of Justice sued to block it due to antitrust concerns, signalling regulatory scrutiny around the consolidation of fintech infrastructure.
As we look to the future, the financial services landscape is set for significant improvement over the next five to ten years, with new companies spinning up and existing ones improving their services. New infrastructure companies are rebuilding each layer of the banking stack, providing modern software solutions "as a service."
Fintech companies are moving from pitching self-driving money to building the vision, but they often face the tension between short-term growth and long-term potential. The challenge in achieving self-driving money lies in the product sequencing, as automating one financial loop requires knowledge of others.
Meanwhile, startups like Chime and Earnin offer short-term, interest-free lending products for the underserved, while traditional banks' bundles are considered lacklustre, offering minimal benefits for high savings. This shift to more restrictive lending among banks has contributed to the imbalance in the market and opportunity set.
Neobanks are betting they can lure profitable prime customers away from incumbent banks with substantially better bundled perks. Shopify, for instance, announced it would be offering $200 loans to any Shopify merchant as "starter capital." In a similar vein, 2020 is shaping up to be the year of the prime bundle-packaged banking services for prime customers.
The Visa-Plaid deal is a strategic move by Visa to bet on the future of financial services, beyond its core of networking payment cards. As fintech companies work to make the financial system more accessible and inclusive for all consumers, regardless of socioeconomic status, the race to revolutionise finance continues.
It is important to note that the views expressed in this article are those of the individuals mentioned and not necessarily those of their affiliated organisations.
[1] Source: The Information (https://www.theinformation.com/articles/visa-says-it-will-acquire-plaid-for-5-3-billion-to-neutralize-a-competitive-threat-to-its-us-debit-business) [2] Source: TechCrunch (https://techcrunch.com/2020/02/05/visa-acquires-plaid-for-5-3-billion-to-accelerate-innovation-and-scale-operations-in-fintech/) [3] Source: American Banker (https://www.americanbanker.com/news/mastercard-buys-finicity-to-bolster-its-data-aggregation-capabilities) [4] Source: The Wall Street Journal (https://www.wsj.com/articles/justice-department-sues-to-block-visa-incs-5-3-billion-acquisition-of-plaid-11581454801)
- The acquisition of Plaid by Visa, a global leader in digital payments, signifies a strategic investment in the financial technology space, as Visa aims to accelerate innovation and scale operations beyond its traditional business.
- Fintech companies, including challenger banks and startups, are increasingly focused on making the financial system more inclusive by offering services to the underserved, which has led to a competitive market and the need for continuous innovation in personal-finance technologies.
- With the rise of fintech infrastructure companies and the race to revolutionise finance, it is essential for traditional players in the industry, such as Visa, to stay vigilant and adapt to the evolving landscape, balancing growth and long-term potential in investing and strengthening their market position.
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