Fintech companies continue to attract interest from traditional financial institutions and now we have a significant acquisition to start off 2020. Yesterday, we learned that Visa is planning to buy Plaid for $5.3 billion. Plaid is unique in the fintech market today, providing the rails for connections between financial institutions. Many consumers in the US have leveraged their service, but they wouldn’t know it because it all happens behind the scenes. Because Plaid has been successful in making these connections possible, they are the defacto choice for many financial institutions. As of now it seems like this large niche that Plaid has carved out is a winner take all proposition.

Chief Executive of Visa Al Kelly noted on an investor call that the acquisition will help Visa expand access to other fintech firms and also accelerate their movement outside of cards. While Plaid has already become a successful fintech company on their own, the credibility of the Visa name is likely to help them reach even more customers. Plaid last raised a round in 2018 at a $2.65 billion valuation. It may sound like a lot to pay for a company, but Visa’s market cap currently stands at around $420 billion. Interestingly, both Visa and Mastercard had participated in a $250 million round. Other investors in previous rounds included Andreessen Horowitz, Kleiner Perkins, Index Ventures, Norwest Venture Partners, Coatue Management, Goldman Sachs, NEA, American Express, Citigroup and Spark Capital.

Writing on the Plaid blog yesterday, CEO Zach Perret said that Visa was the one to approach them and he also explains how the acquisition will work:

We were very impressed by the Visa team from the minute they approached us. They share our vision for the future of financial services and have deep respect for the developer community we support. They want us to operate as an independent business unit so we can keep doing what we do best. We’ll be able to lean on their brand, resources, and international footprint if doing so can benefit our customers, our partners, and the markets we serve.

This deal is welcome news for the fintech community and it is going to be fascinating to watch where Visa takes Plaid from here. And what does this mean for broader fintech? Will this be the year that traditional finance makes fintech acquisitions a priority? The answers will be forthcoming as we see how the rest of 2020 shapes up.