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Visa Makes a Big Bet on Fintech With $5.3 Billion Plaid Acquisition

Visa (NYSE: V) said on Monday that it would acquire privately held Plaid, a leading financial technology provider, in a deal valued at $5.3 billion. Plaid's platform helps consumers securely connect their financial accounts to the apps they use, while "helping them manage their financial lives," Visa said in a press release.

The company said that the acquisition of Plaid represents both an entry into new businesses and complementary enhancements to Visa's existing business, providing new market opportunities both in the U.S. and abroad while delivering advanced payment capabilities to app developers.

Woman using a smartphone with dollar signs appearing above the phone.

Image source: Getty Images.

What is Plaid?

Plaid is a frequently used payments technology platform that many consumers have never heard of. It works behind the scenes to secure users' financial information while connecting to the apps they want and need. Its platform provides end-to-end encryption, strong multifactor authentication, and robust monitoring to ensure that customers' data is secure. 

For example, when users set up a PayPal (NASDAQ: PYPL) Venmo account -- which allows them to transfer money to friends -- it's Plaid's technology working behind the scenes that enables the users to link their bank accounts to Venmo. PayPal is one of Plaid's biggest customers, and PayPal's CEO Dan Schulman chimed in, saying: "We have strong relationships with both Visa and Plaid. The combination of Plaid's capabilities with the security and scale of Visa's global network will provide us with exciting opportunities to enhance our products."

Visa CEO Al Kelly said: "We are extremely excited about our acquisition of Plaid and how it enhances the growth trajectory of our business. 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." 

Massive reach and scale

On a conference call to discuss the acquisition, Visa provided a number of compelling statistics that show why the company is furthering its move into fintech with the acquisition of Plaid. In 2019, 75% of the world's internet users made use of a fintech app, up from just 18% in 2015. Plaid is the leading financial data network in the U.S. and has recently expanded to both Canada and Europe. In fact, one-in-four people with a U.S. bank account have interacted with Plaid's technology. 

The company boasts over 200 million user accounts, an amount that has increased at a compound annual growth rate of more than 100% since 2015. Plaid is also well accepted within the financial community, connected with more than 11,000 financial institutions.

It should be noted that Visa is paying a hefty premium for Plaid. In 2018, during the company's most recent funding round, Plaid was valued at roughly $2.65 billion, though this investment is nothing more than pocket change to Visa, with its market cap of more than $435 billion. 

A further push into fintech

The acquisition of Plaid is just the latest move by Visa to go beyond its credit card roots and establish a strong foothold in the rapidly evolving world of fintech. Over the past year, Visa acquired cross-border payments specialist Earthport, financial token provider Rambus, and merchant data company Verifi, among others

Visa is continuing its push to stake a claim in the lucrative fintech market, which is expected to grow to more than $124 billion by 2025, achieving a compound annual growth rate of nearly 24%. 

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Danny Vena owns shares of PayPal Holdings. The Motley Fool owns shares of and recommends PayPal Holdings and Visa and recommends the following options: short January 2020 $97 calls on PayPal Holdings. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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