Visa’s Bet on Plaid Is Costly but Necessary

Visa is acquiring Plaid, a young software firm that helps financial-technology companies connect to customers’ bank accounts, for $4.9 billion in cash, plus $400 million in retention and deferred equity. The company says it will use new debt at some point to fund the deal.

It is an expensive bet on how people and companies will pay and move money in the future. Privately held Plaid, founded in 2013, was valued at $2.65 billion in a 2018 fundraising. Because Visa’s core card business is so vast and profitable—its operating margin last quarter was 61%—and Plaid is still young and in its investment stage, the deal will be dilutive to Visa’s earnings in fiscal 2021, to the tune of 1 to 1.5 percentage points of adjusted earnings-per-share, the company said. Visa doesn’t expect Plaid to be accretive for another three years.

But expensive doesn’t mean wrong. Plaid is one of a handful of firms that is central to facilitating the growth of new digital-financial services. Betterment, PayPal Holdings, Coinbase and others use Plaid’s software to link their trading, investment and payment services to more than 200 million consumer accounts at banks. What’s notable for Visa is that in many of those scenarios, credit or even debit cards aren’t involved.

Credit and debit cards are of course still a huge and growing business. As long as people are spending more, and paying less often with cash, there is room to grow. Card networks have also worked hard to ensure that many new digital banking tools, such as Apple Pay or PayPal’s wallets, keep cards in the picture. Customers merely turn their physical cards into virtual ones that can be tapped in stores or used with one-click “buttons” when shopping.

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