Visa sets a new milestone for fintech progress

Visa, the payments and credit giant recently purchased Plaid, a fintech company that was mostly working on providing the technology used to connect digital wallets to bank accounts.

Plaid was present on some of the most popular digital wallet platforms such as PayPal, Venmo, Square Cash and many other websites. The acquisition came to $5.3 billion which was quite the shock for the investors as Plaid had just been valued at $2.65 billion not too long ago.

But considering that Visa was more than happy to pay double the valued amount, it means that they are planning quite a lot of changes to the way they acquire new customers in the future.

Visa is not chasing profit

Considering how Plaid was connecting so many digital wallets to banking accounts and being worth only $2.65 billion means that there were some underlying issues that the company was facing in terms of revenue.

Furthermore, considering that Visa made more than $23 billion in 2019 alone indicates that the company is not necessarily looking for additional sources of income in the short term, but in the long term.

Having Plaid in their portfolio allows them to dominate the digital wallet industry in terms of adding extra perks and benefits to connecting Visa cards from the consumers, thus shifting the market share considerably.

In the end, both the consumer and Visa get serious benefits. However, the benefits are divided into time zones in this case. For example, the user gets the benefit for the short-term and Visa gets it in the long-term. This makes for a perfect business opportunity that Visa still has to grab.

Changes to the fintech world

As already mentioned Plaid was playing the role of the middleman between the digital and physical financial worlds. Having this middleman in the hands of the biggest financial company in the world is definitely going to change the reality of how fintech companies conduct business in the future.

Although it may seem like the acquisition of competition by Visa, it needs to be mentioned that it’s good news in the short term for companies like PayPal, Venmo, and others. Visa is 100% guaranteed to lower the commission rates on transferring from and to banks, simply because it wants to keep the retention rates. What this means is that fintech companies, for the next year or so after the official contract is signed will be slightly more profitable due to lower expenses in transfers.

There is also a possibility that Visa’s Plaid will delve into smaller digital wallets such as Neteller and Skrill outside of the United States. Although this may not be the best news for the consumer it’s really good news for the governments.

Why is this concerning for the consumer?

Skrill and Neteller are primarily used in the European and Eastern regions to avoid any meddling from the bank’s part. What this means is that a person transfers their funds to Skrill or Neteller and the bank never finds out what those funds would ultimately be spent on.

Because of this, both Skrill and Neteller were extremely popular with companies operating in the iGaming industry. In fact, according to some of the most top rated Norwegian bookmakers out there, Skrill and Neteller were some of the only platforms they could use to circumvent local regulations for the gaming industry.

By using these services and avoiding the meddling eyes of the banks, iGaming enthusiasts were able to keep their credit scores intact, while also enjoying a side hobby. For those who don’t know, banks tend to reduce the credit score if they know a customer transfers funds to an iGaming platform regularly. This makes it additionally hard to apply for loans.

This could be said the same about firewalled industries and services that are banned in the country but don’t necessarily carry too much risk about them.

Having Visa connect Plaid to bot Neteller and Skrill could ruin the whole “anonymity” feature that so many people are fond of.

One might say that Neteller and Skrill can simply say no to integration, but challenging a financial behemoth like Visa is going to prove to be a tall order. Most fintech companies will most likely have nothing else left to do but comply.

But, in the end, it still will serve them well considering the diversification into other commercial payments, rather than simple transactions.

Possibility to delve into cryptocurrencies?

Visa had its cryptocurrency venture cut short by Libra’s terrible regulatory condition all over the world. The company was forced to drop the association as it didn’t want any of the bad Libra press to affect its own brand.

With the acquisition of Plaid, there’s a real possibility that Visa will try to create its own cryptocurrency sector as it connects the new software to crypto wallets rather than fiat ones.

Sure most wallets are individual software pieces that are not tied to a single platform, but considering the bandwidth of Plaid and the millions of accounts it was servicing on both Venmo and PayPal, there’s a possibility to connect bank accounts to crypto wallets.

Naturally, Visa will have to comply with local regulations on accurately providing data about the transactions happening between bank accounts and crypto wallets, with which they will most likely happily comply.

Author: Yash Hirani

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