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Could Plaid Be 2021's Next Big IPO?

By Courtney Carlsen - Apr 4, 2021 at 11:49AM

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Following Visa's failed acquisition, will the fintech turn its sights to the public market?

It was a little over a year ago that Visa announced its plans to acquire Plaid for $5.3 billion. Visa saw the fintech's services as complementing its existing product suite. It also liked how widely used Plaid is, and how the company bridges the gap between financial institutions and financial app services.

However, those plans came crashing to a halt in November when the Justice Department sued Visa to block the deal, citing antitrust concerns. Visa and Plaid called off the acquisition in January, citing the time it would take to fight the suit.

And just like that, Plaid found itself back where it was before last year -- on its own, and considering its options.

I find this company intriguing, and the fallout of its deal with Visa has me wondering: Could Plaid be the next big fintech to IPO in 2021?

$100 bills.

Image source: Getty Images.

Linking finance apps and banks

Plaid provides technology that lets customers connect their bank accounts to apps. When you sign up for Venmo, Square, or Chime, for example, you can connect the app to your bank account by simply signing in. The company has effectively created a bridge between consumer financial apps and over 11,000 banking institutions, making those apps more seamless to use than ever before.

The company makes money on fees it charges to apps that use its service. So if you connect your Square account to your bank account and transfer money, Square pays Plaid a fee for helping facilitate the transaction.

What I find most intriguing about Plaid is the sheer number of its partners and the fact that many of them are huge names in fintech. It works with the likes of Robinhood, Square, Coinbase, Live Oak Bancshares, and Carvana, just to name a few. These partnerships put Plaid in a prime position for growth. As many of these big names go public and continue to expand themselves, Plaid should grow alongside them. In fact, Plaid's latest funding round valued it three times higher than its valuation just one year ago.

Caught in regulatory crosswinds

In January 2020, Visa and Plaid agreed to a deal valued at $5.3 billion. However, the U.S. Department of Justice has increasingly scrutinized Visa, saying its practices violate antitrust laws. The Justice Department alleged that Visa would be blocking competition by acquiring Plaid, which the department said was creating a payments network of its own that would have competed with Visa.

Visa and Plaid mutually agreed to abandon the deal in January. For Plaid, this meant another round of fundraising. Sources recently told Barron's that Plaid was close to completing a fundraising round in the amount of $500 million to $600 million. This would value the company at nearly $10 billion to $15 billion.

Chances of public offering in near future lower

With that funding soon to be secured, it seems less likely that Plaid will be going public in the near future. Some believed it was exploring a plan to go public via SPAC back in January, but those rumors have cooled down. One source told Barron's that the company would not sell to a SPAC, and that "with $600 million, [Plaid] can be independent for a long time."

The company isn't letting the blocked acquisition deal discourage it. In fact, the pandemic did wonders for the fintech as consumers increased their usage of financial apps. John Pitts, head of policy at Plaid, said that "the amount of consumer adoption of fintech that we saw over the pandemic was dramatically higher than anything we had seen during the previous five years of existence."

The company is optimistic about its future. Last May, it launched Plaid Exchange, a product that aims to help smaller financial institutions keep up with the larger players, in part by moving them away from credential-sharing models, thus increasing privacy and transparency for consumers.

Not much is known about Plaid's finances. Forbes reported that some estimates had the company's revenue in 2019 around $100 million to $200 million. Given the growing use of financial apps during the pandemic and Plaid's subsequent valuation expansion, it's safe to say that its sales are much higher now. While Plaid may not have plans to go public soon, I'll be keeping a close eye on it.

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Stocks Mentioned

Visa Inc. Stock Quote
Visa Inc.
$199.03 (0.84%) $1.66
Block, Inc. Stock Quote
Block, Inc.
$83.44 (-4.25%) $-3.70
Carvana Stock Quote
$33.57 (2.10%) $0.69
Live Oak Bancshares, Inc. Stock Quote
Live Oak Bancshares, Inc.
$36.83 (-1.18%) $0.44

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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