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Logging in to your bank account is now a $3bn business

Jan 14 2019 22:39
Julie Verhage, Gillian Tan and Selina Wang, Bloomberg

When you link your checking account to Venmo or use it to buy Bitcoins, a startup called Plaid is likely facilitating the connection with your bank. You punch in your user name and password; Plaid checks those credentials with the financial institution and if they’re accurate, passes banking information back to the app. That’s it.

This kind of software has been around for decades. But in the last year, Plaid has captured investors’ attention.

The San Francisco-based startup was the subject of a bidding war among venture capitalists and at least one tech company, ultimately resulting in a $250m (about R3.5bn) investment last month. That money will partly go toward the acquisition of one of its biggest competitors.

Plaid plans to announce Tuesday that it’s buying New York-based Quovo. The deal could be worth about $200m (about R2.8bn) after performance bonuses, said three people familiar with the transaction, who asked not to be identified because terms of the deal are private. The companies declined to comment.

Since starting Plaid in 2012, Zach Perret has sold the startup’s nine lines of code to some of the most popular finance apps.

Roboadviser startup Betterment, cryptocurrency exchange Coinbase, PayPal Holdings's Venmo and stock-trading app Robinhood Markets have all used Plaid.

Meanwhile, Quovo specialises in wealth management and brokerages. "This represents the merging of two complementary but both very important businesses," said Perret, Plaid’s chief executive officer.

The arcane business of securely transmitting banking data online had long been dominated by a company called Yodlee. It was established in 1999, signed on several large banks and went public in 2014.

Less than a year later, financial services company Envestnet bought Yodlee for $660m (about R9.2bn).

The upstarts like to draw contrasts to Yodlee, particularly in the area of customer privacy. When someone uses one of these services to log in to their bank, the provider can see their bank balances and other information.

Yodlee has said it sells anonymised user data to hedge funds. Plaid and Quovo say they don’t.

In 2016, Goldman Sachs Group led an investment in Plaid that valued the business at less than $500m (about R7bn).

Last year, Square expressed interest. It held discussions to acquire Plaid for about $1bn (about R14bn), said people familiar with the matter.

Square, which makes cash registers and payments software, has been expanding into online financial services, such as a lending business and a Venmo-like app to pay friends. The talks, which haven’t been previously reported, failed to result in a deal. Square and Plaid declined to comment.

In the ensuing months, VCs jockeyed for a piece of Plaid. One investor pledged to buy shares at more than four times the share price of the earlier funding round.

Mary Meeker of Kleiner Perkins Caufield & Byers came in with an even higher bid. She won in a deal last month that valued Plaid at $2.65bn (about R37bn).

Signing on all the big names in finance was a challenge. Last summer, Plaid was in a very public disagreement with Capital One that has since been resolved. It recently locked in an agreement with JPMorgan Chase & Co, a longtime holdout.

Plaid’s revenue last year was close to what Yodlee was generating four years ago, said a person familiar with Plaid’s financial performance. That number was $89m (about R1.2bn). In order to live up to the hype, Plaid knows it will have to expand faster. Tuesday’s deal could help with that.

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