In the future where Fintech firms dominate, established companies are reacting with three main strategies:
- Cut costs for legacy business lines – like what we said in a previous post Banking Headcount Cut
- Consolidate with other legacy companies to gain more market share and thus more say/power, further cutting expenses and trying to get more economy of scale – like what we said in the last post From TD Ameritrade To E-Trade: A Wave Of Consolidation
- Acquire Fintech startups or replicate what they are doing – like the title of this post Buy & Be FinTech
Visa x Plaid
In Jan 2020, Visa said it will acquire Plaid $5.3 billion. The deal includes a $4.9B cash consideration and $400M of Visa stock as retention equity and deferred equity consideration.
Plaid is a Fintech firm that enables a lot of other Fintech apps & digital transaction based businesses, providing underlying APIs. It counts Venmo, Robinhood, Coinbase, Acorns, etc. as customers.
Previously in Dec 2018, Plaid raised $250 million Series C at a valuation of $2.65 billion, led by Mary Meeker with capital from Kleiner Perkins’ growth fund. The growth.
In its mid-2016 financing tho, Plaid was only valued at $200 million.
The growth of valuation is supported by the growing business, the network effect and the sticky/recurring nature.
Through the Plaid acquisition, Visa secured a very strong spot in the future of Fintech and can expand/build upon the Plaid’s platform.
In Visa’s presentation, there is a list of Fintechs with rapidly growing users, on the top of which is Credit Karma with 100 million users.
Intuit x Credit Karma
On Feb 24, Intuit (Nasdaq: INTU) announced that it has agreed to acquire Credit Karma for $7.1 billion in cash and stock. (50/50).
Credit Karma lets people check their credit scores, shop for credit cards and loans, file taxes and more. It had close to nearly $1 billion revenue in 2019, growing at 20%.
In 2018, Credit Karma was valued at $4 billion when Silver Lake purchase $500 million in the secondary market.
The company started out originally in 2007 providing free credit scores, later extending that to full credit reports. Credit Karma’s launch of a financial planning tool in 2013 drew a direct comparison to Intuit’s Mint. And since then, Credit Karma has launched other products that directly rival Intuit, for example a free tool to help people file their taxes. These not only represented direct competition, but a disruptive threat, since Credit Karma’s products skewed younger and were built on a “free” premise (offering the products at no charge and instead making money off showing users and selling relevant, related products). The fact that Credit Karma partners with so many other financial services providers also means it’s sitting on a huge data trove that it leverages to build and personalize products, representing a data science angle for Intuit here, too. [TechCrunch]
Meanwhile, besides the notable acquisitions of Fintechs, companies are building similar services by themselves.
In Jan 2020, Goldman Sachs launched a long-awaited app of its online bank Marcus for customers . The bank launched Marcus in 2016.
And BofA’s AI-powered assistant Erica has pulled in more than 10 million users. Zelle peer-to-peer (P2P) payments increased 76 percent year-over-year in the fourth quarter of 2019.
While JP Morgan has closed its experimental mobile banking app Finn last year, its own branded mobile app is ranked one of the best. The idea was for Finn to reach locations—St. Louis among them—where it didn’t have branches.
By mimicking the experiences/apps offered by startups, established players are essentially becoming Fintechs themselves, thus evolving internally and embracing the future more positively.