Fintech

After breakup with Visa, Plaid could be eyeing public markets

The fintech is more likely to go public via a SPAC, direct listing or traditional IPO

After Visa’s attempt to acquire Plaid for $5.3 billion fell apart nearly one year after the deal was first announced, industry observers are betting that the startup will nix getting acquired by another company. Instead, Plaid is more likely to go public via a traditional initial public offering, a special purpose acquisition vehicle (SPAC), or a direct listing, according to several fintech bankers and venture capitalists who spoke anonymously to Barron’s

Indeed, after the companies announced on Tuesday that they had terminated their agreement, many of us concluded that the news was actually not necessarily bad for Plaid. In the year since the acquisition was first announced, the fintech space has exploded and the $5.3 billion price tag now seems to undervalue the company.

Pinar Ozcan, a Professor of Entrepreneurship and Innovation at Oxford Said Business School, agrees that the logical next step for Plaid could very well be a move toward the public markets. She also believes that the events of the past year have had a major influence on Plaid’s value in the fintech world.

She and the team at the Oxford Future of Finance and Technology Initiative have been researching fintech strategy and open banking “for a while now,” Ozcan shared her view, based on research conducted with Dize Dinckol, with FinLedger.

“Plaid had significant growth during the economic downturn of the coronavirus crisis, demonstrating the increasing demand to digital ‘financial wellness’ products, especially in times of crisis,” she wrote via email. “This illustrates how global challenges (i.e., the coronavirus pandemic) and an accelerated move towards digitalization put fintechs (especially savings and investment fintechs) at an advantageous position in terms of fast growth.”

Fintechs powered by Plaid’s platform (such as Robinhood, Venmo, and SoFi) gained significant traction during the pandemic as people prioritized saving money in the face of an economic shock. This strengthened Plaid’s central position in the market, noted Ozcan. 

“This might now mean that fintechs have a higher chance to grow as independent companies and start really competing against the giants of the industry, especially in a future where open banking takes hold,” she wrote.

So while the collapsed deal might have some negative effects on venture capitalists planning to exit via a profitable acquisition, it might also make Plaid (and other fintechs that achieved high growth like Plaid) an attractive target for growth equity investors, IPO bankers and SPAC sponsors, Ozcan argues.

“The fact that Plaid attracted the interest of an industry giant, Visa, is in itself an indicator of the competitive and innovative potential such fintechs create via solutions benefiting the society,” she told FinLedger. “Furthermore, the reactions from regulators to the acquisition news show that how they, as key decision-makers in the market, perceive fintechs as strategic actors ensuring innovation and competition in a traditional, stagnant market. It also hints that open banking will likely be the future of the industry.”

It’s now clear that Visa wanted to buy Plaid because it was an emerging competitor and threat to Visa’s business with its debit card plans. Hence, the DOJ lawsuit.

Ozcan points out that “Plaid has been a successful, innovative start-up that provides an interconnectivity and communication platform across different financial institutions – incumbent or start-up. It is also an enabler of open banking in the US via its platform and APIs, and it has become a leading data aggregator in the US. Thus, Plaid’s connections across financial institutions has the potential to challenge the monopolistic position of Visa and its payments network.”

Yep.

On top of that, given the high number of transactions facilitated by the Plaid platform, the company has access to and collects a significant amount and variety of financial data. These data and data-driven capabilities allow for new ways to identify customer needs and build appropriate, customized solutions to these needs emerging from customer data, Ozcan points out.

“Even though the network (and so, the data access potential) of Visa is larger than that of Plaid’s; the capability of extracting insights from data is where fintechs like Plaid are a lot more superior,” she wrote. “Therefore, with this acquisition, Visa would be able to both eliminate an emerging threat and complement its existing services with data-centric solutions.”

For its part, Plaid declined to comment on speculation that it’s eyeing the public markets.

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