The acquisition is the latest in a string of multi-billion payments sector deals, including Fiserv’s $39 billion deal to buy First Data, Global Payments’ $21.5 billion agreement to acquire Total System Services (TSYS) and FIS’s plans to buy Worldpay for $35 billion.
“We have strong relationships with both Visa and Plaid said Dan Schulman, president and CEO, PayPal in a release shared late Monday.
He added: “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,”
What is Plaid?
Plaid builds financial services APIs that allow developers to connect financial services firms together. Mastercard and Visa both participated in its Series C round in 2018.
Visa said the acquisition will “enable Visa to work more closely with fintechs through all stages of their development and drive growth in Visa’s core business.”
Where’s the Value?
Global Data’s lead fintech analyst Stephen Walker told Computer Business Review: “Those other big payment deals have been about service providers giving merchants ability to accept widest possible range of payments in one deal. Plaid is about agreed standards for connecting accounts/accessing data.
He added: “Even in markets where open banking is top-down, reg-driven, APIs and standards still matter because initial mandated APIs were really minimal viable product, watered down by negotiation/agreement, with all the more interesting stuff to happen on top of that on voluntary basis (as paid-for-products).
“And because of how the European Union structured the legislation – defined the “what” (country must have a data sharing standard) but not the “how” (i.e. use this standard, unlike with the United Payments Interface (UPI), in India, which also specified exact standard) – there is a fragmentation of standards across Europe.
“Incumbent banks are changing their APIs all the time”
“Even in one country with a common standard, there are many things incumbents can do to impair the data access and experience of third parties, such as making multiple requests for consent or requiring online authentication instead of One Time Pass Codes (OTP). As it is, incumbent banks are changing their APIs all the time (deliberately) which means [it’s hard for] a dedicated team of data people from a small start-up to stay on top of data access. You need a Plaid to get round that to make open banking work, and that’s even in regions that are meant to have a standard.
He added: “Meanwhile, there is no top-down driven standard. Data sharing is occurring bi-laterally, with a flurry of data sharing deals driven by big banks which often disadvantages smaller players in negotiations. Especially if (and when) when screen-scraping, the life-blood of fintech innovation thus far, goes out when the new agreed APIs come in, effectively giving incumbents more control – not less – over what data is shared when, how and with whom. We had recent episode with PNC blocking Venmo through Plaid. Technical considerations: screen-scraping, server-side aggregation, client-side aggregation, and APIs… Plaid has multi-sourced aggregation because different approaches legal in different geograpahies. And even where legal, different approaches are more easily blocked by banks.”
Stefano Vaccino, founder and CEO of Yapily added: “”It’s great to see big players positioning themselves in the world of open banking and open finance, this will help to accelerate the sector’s growth even further. Card payments are expensive for merchants to process, and with two-factor authentication on its way in the second part of this year, there will be an increased layer of friction. Payments through Open Banking will offer a smoother and more secure way to pay, and will provide an opportunity for merchants to decrease costs and transfer these benefits to consumers.
“This space will be disrupted hugely as the possibilities of open finance are realised, and incumbents must innovate to remain relevant.”
The deal is expected to close within three to six months., Visa will fund the transaction from cash on hand and “debt issuance at the appropriate time.”