With U.S. fintech Plaid’s intended acquisition by Visa called off on January 13, the company will be looking to expand in different ways. Two likely avenues are products and geography.
Asia was originally in the sights of Plaid’s founders. Might it be again?
Co-founder Zach Perret had suggested China was a goal when he announced Plaid’s first international expansion in June 2019, to the United Kingdom. It was a casual comment, with no real business plan.
Since then, Plaid has gone live in the U.K., Canada, Ireland and the Netherlands, and is in beta mode in a few other European markets. But in this time, the company has been operating under the demands of its planned acquisition by Visa, which was announced in January 2020.
The deal, for $5.3 billion, was like a starter’s pistol on big fintech M&A last year. It set the pace for a long list of deals, such as Mastercard’s buying Finicity and Intuit buying Credit Karma, which made 2020 so exciting for fintech.
The Plaid deal was the king. It was the biggest announced acquisition of a fintech—so big that the U.S. Department of Justice decided it was anti-competitive, arguing that Visa was buying Plaid to maintain its position in payments and stifle innovation.
Visa remains a minority shareholder (as does Mastercard) and a strategic partner, so the relationship isn’t over, but Plaid’s co-founders must now create a new destiny for the company – and the ten-year old startup will have to keep its team happy without the big payday.
In global terms, Plaid is a big story in fintech. It is an aggregator, providing critical infrastructure for fintech companies by connecting them to financial institutions via APIs. This model has enabled U.S. consumers to connect their fintech providers, such as Chime, Coinbase and Robinhood, to bank accounts.
A number of big Western fintechs have been building a presence in Asia, including other Plaid customers such as SoFi and TransferWise. Can Plaid follow its biggest customers to Asia?
Open banking, Asia style
The landscape in the region has changed since Plaid first floated the idea, which makes a splashy entrance unlikely – which says more about how fast Asia is moving rather than anything specific about a U.S. fintech business.
Plaid is at the heart of open banking models, for which there is little regulation in the U.S. Commercial decisions drive fintechs, banks and consumers to adopt these relationships. Plaid has a number of domestic competitors such as Yodlee; the U.S. market remains large, and the opportunity remains for a company like Plaid to disintermediate the traditional credit-card rails (which is why Visa was so keen to acquire it).
Open banking as a regulatory mandate originated in the U.K. and Europe more than ten years ago, which powered the first generation of neobanks and payment innovators.
In Asia’s various markets, open banking is a patchwork, but if there’s a common theme, it is one of governments building the infrastructure themselves.
Governments already do it
India is the best example: the National Payments Corporation of India, a government agency, is starting to roll out an account aggregation system that will eventually be nationwide. The idea is to empower consumers to allow their data to be used for access to credit, healthcare, education, and other services.
The Hong Kong Monetary Authority announced a new project in October called the Commercial Data Exchange. It is essentially building a centralized open-banking infrastructure, albeit one aimed to help small businesses rather than consumers. CDX will allow SMEs to require their banks share their data, but it will also enable banks to develop their own credit scoring based on that data so they can provide capital to SMEs.
Singapore has gone further, in a drive to become a “smart city”: the Monetary Authority of Singapore has a platform where individuals can consolidate and access financial information held across government and bank websites, including pensions, tax, income, loans and credit card information.
Singapore also has platforms like the MAS-backed APIX, an API exchange connecting fintechs and banks, although that’s more for building projects than for data sharing. Nonetheless, banks in Singapore from DBS to Citi have aggressively rolled out APIs with select partners.
There are markets where a service like Plaid’s is still needed. But local players are rapidly filling the gap, such as Brankas and Brick in Indonesia. Fintechs like NIUM are playing the same role at a regional level.
A bright future…at home
Now that Plaid is independent again, it has some bright prospects: it could well build into a company with a valuation far greater than $5.3 billion.
The pandemic has accelerated digital finance away from reliance on credit cards. Plaid can enter new products to better serve consumers’ financial needs, such as the debit service it had considered before the Visa deal came along. It can focus on innovating rather than conforming to Visa’s agenda.
It can also raise crazy money if it wanted to sell to a SPAC. It could also raise a growth round of funding.
And Plaid can grow overseas, if it can integrate into local banking infrastructure, or acquire local businesses. Being part of Visa would have made this a lot easier, but Plaid’s got the heft to pay for a great Asian aggregator.
Asia’s digital economy will continue to grow. The region is still the place to be. Governments may be reshaping the landscape but they are not monoliths; there will be niches they do not serve. Also, these government projects are new. Governments don’t have a track record of constant innovation. Fast-paced, aggressive private tech companies will always find a way to deliver a better experience.
It’s also unfair to say Plaid is totally unfamiliar with Asia. It works with another fintech, Placid Express, which supports international fund transfers by linking users’ bank accounts via Plaid to local automated clearing systems (bypassing the credit-card and SWIFT networks). This service connects to eight Asian markets, including India, the Philippines and Vietnam.
Asia also has a growing segment of potentially huge fintech customers, not least a new coterie of virtual banks, countless mobile wallets, and e-commerce giants.
Any corporate strategist at Plaid would have to take a look at the region.
But they are more likely to find open-banking infrastructure and norms across Asia have leaped ahead while Plaid was focused on the Visa deal.