Thread by @shahjayni

Fintech 2020 is already on🔥! @Plaid's acquisition by @Visa last week shows that the scale of the fintech opportunity will surpass expectations (in large part bc the universe of acquirers is massive). Some thoughts on the deal below ⬇️

@Plaid @Visa 1) Traditional financial services companies are acquiring the “tech” needed to partner with (and re-position themselves as) “fintechs". 3 out of every 4 internet users in the 🌎 use at least 1 fintech app, so incumbents like @Visa must find ways to keep up

@Plaid @Visa (a) In their strategic rationale deck, @Visa says @Plaid “enhances Visa’s role as a partner to fintech developers globally”. On the investor webcast, @Visa’s CEO said "[the deal] positions Visa to capitalize on the fintech-driven evolution that is happening in financial services"

@Plaid @Visa 2) @Plaid (just like @Stripe) gets a premium valuation for 1 big reason: it locks in a customer segment that is growing EXPONENTIALLY💥 and operates in a market that is BOOMING 📈

@Plaid @Visa @stripe (a) @Stripe is now an essential 🛠️ for eCommerce (which is still <8% of all commerce globally). Similarly, @Plaid has become an essential infrastructure layer for emerging fintechs (a category that's expanding like crazy) See @Visa's graphic below:

@Plaid @Visa @stripe 3) It's a nod to the relevance of consumer fintech + a bet on how 💸 will move in the future via DIGITAL & NON-CARD PYMTS

Most of the use cases Plaid powers don't involve debit/credit cards (Visa’s core products). It's the card network saying: the future won't be so card-centric

@Plaid @Visa @stripe (a) @Visa and @Mastercard are already facing intense pressures internationally due to secular trends in countries like India, who have entirely leap-frogged plastic and entered the era of mobile payments directly from cash-based economies

@Plaid @Visa @stripe @Mastercard (b) As more transactions become virtual, neobanks like @RevolutApp have the potential to cannibalize @Visa's cards business in the long-term. Yet near-term, the networks are compelled to partner with these upstarts for distribution

@Plaid @Visa @stripe @Mastercard @RevolutApp (c) V’s biggest competitor, MC, has long positioned itself as fintech-forward. It recently launched Mastercard Accelerate to “support [fintechs] from startup to expansion.” Eg: fintech-as-a-service 🦄 Rapyd, will partner with MC to issue cards for @RapydPayments corporate clients

@Plaid @Visa @stripe @Mastercard @RevolutApp @RapydPayments 4) V is a trusted partner to the banks. Plaid’s relationship with 'em is more contentious. Remains to be seen if the acquirer’s heft promotes a new standard of open-banking, or if the banks feel even more dis-intermediated from the end consumer, a relationship they once owned

@Plaid @Visa @stripe @Mastercard @RevolutApp @RapydPayments 5) Fintech deals are getting done at RECORD high multiples. Plaid has received somewhere between 35-50x multiple on revenue. PayPal acquired Honey for ~40x Revenue. These companies are being valued like best-in-class SaaS companies. Here’s why:

@Plaid @Visa @stripe @Mastercard @RevolutApp @RapydPayments (a) Acquirers are not being penalized (but appear to be rewarded) for pursuing large acquisitions even when richly priced. Just check out analyst reactions to PayPal’s $4B acquisition of Honey in November '19

@Plaid @Visa @stripe @Mastercard @RevolutApp @RapydPayments (b) Acquirers need new growth engines and are using M&A to meet growth targets. Visa did $23B in net revenue for FY’19, up 11% from 2018. This acquisition will expand V’s overall TAM (by growing its footprint in fintech), accelerating long-term revenue growth

@Plaid @Visa @stripe @Mastercard @RevolutApp @RapydPayments (c) Plaid has been comp’ed to the likes of @twilio. API companies that are generally high-margin businesses and loved by the public markets. IMO there had to be an API layer for banking/ financial services, and Plaid has owned that space

@Plaid @Visa @stripe @Mastercard @RevolutApp @RapydPayments @twilio 6) ⏳ Began as a very different business: Stated value prop in their seed deck: “For users we are building a card-linked personal profiling and and discovery application. For businesses, we’re creating the most robust customer analytics platform for the offline retail world.”