One of the noteworthy announcements in FinTech from 2020 was the acquisition of Plaid (top fintech platform in bank data aggregation) by Visa (a global leader in card networks and payments). The volume of data and connections to banks made by Plaid in the last 6 - 8 years is rivaled by no one. The San Francisco-based unicorn rode the early wave of FinTech 1.0 growth through early partnerships with Coinbase, Robinhood, and many other household names in consumer financial apps.

Two weeks into 2021 and the deal has been called off by both sides due to a prolonged review period from regulators and concerns about a negative (monopolistic) industry impact. The announcement sent shock waves throughout the industry. The industry is asking: What exactly happened? Where does Plaid go from here?

Let’s answer those questions and explore further:

• the concern from regulators, and Plaid (with Visa) jointly deciding to walk away;

• Plaid’s focus goes back into high-growth mode and advocating for open banking;

• future considerations for the industry data leader in bank aggregation.

WHY DID THE plaid - VISA deal FALL THROUGH?

Visa and Plaid chose to abandon the $5.3B planned acquisition amid the Department of Justice (DOJ) antitrust lawsuit challenging the deal. The DOJ issued a lawsuit last November on the basis that Visa would unlawfully maintain a monopoly in the digital debit card space. The case was scheduled for trial in the U.S. District Court in the Northern District of California in 6 months (June 28, 2021).

The Justice department saw Plaid as an emerging, but directly competitive threat to Visa (based on Asst. AG Makan Delrahim’s statement). Removing Plaid as a competitor would lead to increased prices, reduced innovation, and larger barriers to entry for other players. Visa would be able to further protect its leadership position in digital payments by acquiring Plaid.

In the card network space, few players exist and new companies aiming at disruption lack the capital, resources, and partnerships to compete for market share. The payment network’s dominant revenue position in card processing blocked them from extending their lead further by purchasing Plaid.

Overseas, the Competitions and Market Authority (CMA) in Europe actually gave their approval in August 2020. This was due to the smaller presence of Plaid in the UK and numerous existing competitors able to challenge the Plaid-enhanced version of Visa.

Visa initially vowed to fight the government’s stance on the proposed acquisition, citing a collaborative (not competitive) ecosystem. The card network felt strongly that benefits in the industry would reach global consumers and fellow institutions in payments.

As a result of Visa and Plaid’s decision to terminate their merger agreement, the United States has filed a Joint Stipulation of Dismissal.

For industry insiders, there was a different type of concern: A Visa-owned Plaid would have direct access to massive volumes of bank data on consumers and businesses.

The payments giant can layer this access with its existing data on payments to create an all-inclusive analysis and profile of users. Visa would know where spending came from AND where it was going on a user. Detailed analysis of customer data is gold in today’s financial services landscape. Visa would have critical control in how much of this data (if any) can be shared with external parties, especially potential competitors.

Visa and Plaid will still maintain their relationship as partners and may add new methods to work together on new intitatives.

after the deal’s fall out, WHAT will PLAID FOCUS ON NEXT?

Fortunately, the fintech giant can continue growing by controlling its own destiny. Plaid is still riding high on its own success from 2020, both in client acquisition (e.g. Microsoft and PayPal), new bank partners, and expanding their global footprint:

Last year, Plaid actually made another major announcement — launching its new platform, Plaid Exchange (PX). The company began to focus on financial institutions and enabling connections in a way that gives banks enhanced oversight and control. Banks can now choose to work with Plaid to build their own API infrastructure with a modern token-based system for clients.

The fintech aggregator is now able to serve both consumers and banks on its platform. Similar to today’s social networks, customers can verify if they connected their bank account with a 3rd-party service (and disable or maintain the link). Financial institutions can review the status of connections to identify issues within the infrastructure.

For international expansion, Plaid started back in May 2019 with the UK. The data aggregator quickly added platform partnerships with Monzo, Curve, and Canopy. Europe is experiencing tremendous demand for embedded finance and payment solutions. There are plans in the works to launch in other countries and add new open banking products and features in the new year.

Plaid has moved on to focus on the brighter side of the failed acquisition: committing all its energy on improving the global financial services landscape through open banking — Plaid’s guiding theme (especially in Europe where regulation is more advanced than in the US).

CONCERNS ON PLAID’s FUTURE

The critical component that Plaid (and all other data aggregation providers) are worried about in the short-term is open access from banks (of their user’s data). Banks and credit unions of all sizes can dictate which 3rd party firms can access customer data and when. For fintechs with business models based on real-time account balances and transaction history, poor (or no) bank connectivity would be a disaster. We’ve seen a few banks (such as PNC and Capital One) conflict with aggregators like Plaid in the past. Until there is a regulatory standard set in the US, friction between these institutions and API-providers will still take place.

For more on PLAID:

Plaid is advocating for Open Banking and fintech-friendly policies in the US. The key supporting argument from FinTech continues to be for customers being allowed access to their data. The opposing side (of banks) wants to ensure proper security and authorization on behalf of clients, with some banks controlling their own tokenization for others to follow.

Outside of providing data access and insights, there aren’t any other main revenue drivers of growth for bank data aggregators like Plaid. Taking its business model to new regional markets is the current play, while testing the waters with new capabilities or features can help build long-term success. With its size of reach and network, Plaid can enter into a new product area quickly and capture the rising tide in digital banking and lending activity.

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