In 2020, Visa (V +0.71%) and Plaid agreed to a $5.3 billion deal that would have given Visa the fast-growing fintech. However, the Department of Justice squashed this deal, alleging that Plaid was building a payments network of its own and that Visa's acquisition would reduce competition.
Visa didn't give up. Instead, the payments giant added Tink, a European-based open-banking network, for $2.1 billion. This move gives Visa a leg up in open banking, which is growing in popularity.
Image source: Getty Images.
Visa's push into open banking
What Visa liked about Plaid was its open-banking technology, which allows customers to seamlessly move cash from their bank accounts to other fintech applications. Plaid allows customers to connect their bank accounts to apps like Chime, Acorns, and Stripe, bridging the gap between financial apps and over 11,000 banking institutions.
With the Plaid deal falling through, Visa was undeterred. Last year, it added Tink, which has a robust open-banking network in Europe. Founded in 2012, Tink offers tools that allow anyone to build financial products by connecting developers with banks through application programming interfaces (APIs). This allows for the creation of a new generation of financial apps.
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Key Data Points
The open-banking movement has found wider acceptance in Europe than in the U.S., with the European Union passing a law that requires banks to allow access to third-party providers on behalf of their customers. This comes as attitudes toward open banking have shifted in Europe in recent years. According to a survey by Tink, 71% of executives had a favorable view of open banking in 2021, up from 55% just two years earlier.
Source: Tink.
$416 billion is at stake
According to Accenture (ACN +1.92%), up to $416 billion in revenue is at stake from the open banking movement. The consulting firm said that "banks that are not yet considering their place in the open-data economy risk yielding the market to more-agile competitors."
One area where open banking has exploded in popularity is the U.K. According to the U.K.'s Open Banking Implementation Entity (OBIE), the number of payments made through open-bank APIs is up 84% in the last year. Given this rapid growth, it's no wonder Visa invested billions in Tink.
Data source: U.K.'s Open Banking Implementation Entity. Chart by author.
Visa believes it can accelerate the open-banking movement
One key concern over open banking is cybersecurity. While it makes it seamless for customers to connect financial apps to their bank accounts, concerns stem from how safe customers' data is.
This is where Visa can help. The company has invested heavily in cybersecurity and fraud prevention to secure its massive payments network. It can leverage these investments and help make the open-banking movement safer for customers.
Visa Chief Executive Officer Al Kelly said, "By bringing together Visa's network of networks and Tink's open-banking capabilities, we will deliver increased value to European consumers and businesses with tools to make their financial lives more simple, reliable, and secure."
Visa faces increasing threats to its payment networks from PayPal, Plaid, and the bank-backed money transfer service Zelle, so its efforts to stay ahead of the competition are a good sign for investors.
