You can’t win - lead: why Visa and MasterCard invest billions of dollars in fintech startups

One of the most high-profile events in the financial market in January 2020 was the purchase by the Visa payment systemfintech startup Plaid for $ 5.3 billion In addition to the impressive amount of the transaction, the fact that Plaid is one of the cryptocurrency-friendly companies, including including the Coinbase exchange and the Abra digital asset purchase and sale application, aroused interest.

This in turn triggered a series of rumors andspeculation about the true reasons why Visa took such a step, giving rise, for example, to conspiracy theories that the payment giant intends to crush the cryptocurrency industry for itself, in order to protect itself from competitors. ForkLog tried to understand whether this is the case in reality and what possible consequences this may have for the fintech industry as a whole.

Recall, the deal was announced on January 14, and hercompletion is expected within 3-6 months after obtaining the necessary regulatory permits. According to Visa, the acquisition of Plaid will allow it to provide users with advanced payment options and related services for fintech developers.

“This acquisition is a natural evolution.”Visa’s 60-year journey from creating a safe and reliable connection between buyers and sellers to providing consumers with access to digital financial services ... The combination of Visa and Plaid will lead us to the epicenter of the fintech world, expand our target market and accelerate our long-term revenue growth path ”,- Al Kelly, the company's chief executive and chairman, said at the time.

So, according to the presentation, which waspublished at the same time as the announcement of the transaction, the potential acquisition of Plaid will help Visa to add from 80 to 100 basis points to its revenue growth by 2021.

What is Plaid?

Plaid was founded in 2013 andbased in san francisco. Being essentially an aggregator of financial data, it aims to simplify the process of securely connecting bank accounts to financial management applications.

In particular, the Plaid softwareallows you to reduce the previously too long verification process to a few seconds, receiving information about users' bank accounts and securely «packaging» for further usage. Financial companies are also interested in making registration faster and easier, and pay Plaid money for this.

80% connected to the Plaid network todaythe largest fintech applications in the United States, while the company's partners are more than 11 thousand banks and financial services companies. Among them are the already mentioned Coinbase and Abra. The Plaid user base has more than 200 million accounts, one in four of which belongs to users with active bank accounts, and the company employs about 450 people.

Plaid co-founders Zach Perret and William Hawkey. In 2015 they were included in the Forbes rating30 Under 30

By the time of the deal with Visa, the company already had the statusunicorn, having secured venture investments in the amount of $310 million. A year ago, Plaid was valued at $2.65 billion. Another interesting fact is that Visa was one of Plaid’s early investors. Other notable organizations that have invested in Plaid include Andreessen Horowitz, American Express, Goldman Sachs and Citi. Moreover, a direct competitor of Visa — also invested in the company. MasterCard company.

What are the goals of Visa and Mastercard

The purchase of Plaid was not the first transaction for the payment giant in the field of fintech. In total, Visa invested in almost 50 companies, including those working with cryptocurrencies.

So, in July 2019, together with BlockchainCapital led a $40 million Series B funding round for cryptocurrency custodial services provider Anchorage. This was the second time for Visa to invest in cryptocurrency companies — the first was investments in the developer of blockchain solutions for the financial industry Chain in 2015. In 2018, Chain was acquired by Lightyear, and at the same time it was rebranded to Interstellar, which was intended to show its focus on developing products on the Stellar blockchain.

MasterCard does not stand still. Back in March 2015, the company published a report in which the term “virtual currencies” was used repeatedly and each time in the context of competition, and in October of that year, MasterCard was among the investors of Digital Currency Group (DCG). For Barry Silbert, this was the first round of financing, which was also supported by other multibillion-dollar corporations: the Canadian bank CIBC, the insurance company New York Life, the TransAmerica Ventures venture capital fund and the British financial group Aegon.

Recall that DCG includes the investment company Grayscale Investments, the value of cryptocurrency assets under its management in 2019 reached almost $ 3 billion.

MasterCard is also active inobtaining patents in the field of cryptocurrencies and blockchain technology, among which patents for the technology of multicurrency blockchain systems and the method of accelerated processing of cryptocurrency transactions can be mentioned.

In addition, in February 2019, MasterCard togetherwith Ripple and Barclays, it became one of the investors of the SendFriend payment startup, which offers a solution in the field of international money transfers using XRP tokens.

It is also necessary to recall that in 2019 bothLeading payment systems from the very beginning announced their participation in the sensational Libra digital currency project from the social network Facebook, but subsequently withdrew from it, citing regulatory concerns as the reason. At the same time, Visa representatives did not miss the opportunity to note that “well-regulated blockchain-based networks can increase the value of digital payments for a huge number of people, especially in developing countries.”

According to the two most popular versions amongfinancial analysts, all these Visa and MasterCard initiatives suggest that both companies are not only trying to find their place in the rapidly developing world of innovative financial services, but also to maintain their status as the dominant forces in the market.

Is there a direct threat to cryptocurrencies?

If we consider a single transaction betweenVisa and Plaid, it is worth noting that the payment giant is estimated at $ 420 billion, while the total capitalization of the entire cryptocurrency market as of early February 2020 was about $ 260 billion.

However, some community membersThey almost immediately stated that such steps by Visa are aimed at eliminating possible competitors and are based on the principle “you can’t win — lead.”

</p>

&#171;Visa will continue to buy anyplatforms that will take away some of its centralized and vicious market share of payment protocols. They can't buy just one truly decentralized, freedom-promoting protocol &#8212; bitcoin&#187;, &#8212; user @CrptoDemps wrote.

The co-founder of Morgan Creek Digital also said that Visa’s actions were dictated by growing competition.Anthony Pompliano:

</p>

&#171;Over the next 3-5 years, leading financial services companies will be acquiring various fintech startups. If they don't do this, startups will put them out of business.

This idea was continued by the co-founder of Trezor Wallet and until recently the director of strategic development of CasaAlena Vranova. In a comment to ForkLog, she said:

&#171;I think Visa doesn't want to be left behindblockchain train, whatever it may be in their minds, but at the same time it also does not want to bear the risks associated with developments. It seems that having refused to participate in the Libra project under pressure from the US Senate, Visa, with the help of Plaid, decided to take an easier path. Although I do not rule out that this could indeed be an attempt to neutralize competitors.

A similar point of view was expressed by the CEO of RippleBrad Garlinghouse:

</p>

&#171;Such consolidation does not surprise me, and we can expect it to give impetus to other similar events in 2020&#8212; in fintech, cryptocurrencies and other areas&#187;,&#8212; wrote the head of Ripple.

A more conservative opinion is held by a fintech investor and partner at Black House Private Equity, a company specializing in mergers and acquisitions.Chris Thomas. In a comment for ForkLog, he said:

&#171;For Visa, this is a normal extension of itsecosystems and access to that part of the customer base to which it usually does not have access. I don’t think they will be able to suppress cryptocurrencies in any way, but they can learn and try to make their products more innovative, although this is a very difficult task for such companies.

The changing landscape of the payment services market

Representatives of the above Ripple and Stellarrefrain from commenting on how the deal between Visa and Plaid, as well as other important initiatives of the two giants in the payment market, can affect their own position. Nevertheless, increasing competition means that in the foreseeable future it will be possible to observe a certain change in the balance of power.

Recall that December 2019, Ripple attracteda record $ 200 million, after which the capitalization of a California-based company grew to $ 10 billion. Last year, the global payment network RippleNet grew to more than 300 customers in more than 45 countries on six continents and includes a new strategic partnership with MoneyGram. In addition, Ripple's “liquidity on demand” (ODL) payment solution is actively developing, where the XRP token acts as an intermediate currency. MoneyGram also uses it, and at the end of last year, the British company for money transfer services TransferGo announced plans to switch to ODL.

An important share in the fast payment sector is alsothe Stellar platform, in favor of which IBM chose in 2018. Last year, the release of 26 stablecoins on the Stellar blockchain for use in money transfers, issue and redemption of tokens, as well as for payments for services, was reported by the Wirex cryptocurrency platform.

And already at the beginning of 2020 the intention to replaceThe outdated SWIFT protocol using a payment solution based on Stellar was announced by the fintech company Lightnet from Thailand. Her goal &#8212; reach millions of users in the Asian region, offering a level of financial mobility that traditional financial solutions providers are unable to provide.

However, Visa also makes clear that herown ambitions in this sector are very high. In the presentation for the deal with Plaid, the company identified key areas for growth (banking and investment, landing, consumer payments, financial management and business services), and also indicated a high expansion potential in international markets, where the number of users of fintech applications is 15 times exceeds the US.

Source: Visa

Possible way to enter international marketsmay lie through the Revolut digital banking application, the expansion of the partnership with which was announced in September 2019. Prior to this, the two companies successfully collaborated in the EU, but in future plans joint access to the markets of Australia, Brazil, Canada, Japan, New Zealand, Russia , Singapore and the USA at the initial stage and subsequent expansion to a number of other countries around the world, including Ukraine.

Further developments promise to be veryinteresting. The fact that the payment services market needs radical changes, today almost no one doubts, and the fact that such giants as Visa and MasterCard do not remain aloof from the latest trends, this only confirms.

Andrew Asmakov