Visa’s $5 billion acquisition of Plaid was unconditionally cleared by the U.K.’s CMA on August 24. It contrasts with the EU conditional approval obtained by Mastercard in its acquisition of Nets on August 17. The analysis conducted by the U.K. regulator left a door wide open for companies like American Express, PayPal and TrueLayer to continue the consolidation in the customer-to-business (C2B) payment sector.
Rationale of the deal
Visa’s acquisition of Plaid gives the card company the opportunity to expand its reach beyond credit cards and render it a global fintech enabler. While Visa’s core business focuses on a card-based payment system, Plaid is a financial data network that connects banks, financial institutions with app developers to enable account-to-account (A2A) payments and payment initiation services (PIS). These type of payments are gaining momentum in the U.K. and elsewhere, particularly after the adoption of the PSD2 and card-based payments are likely to lose market share (i.e. volume of transactions) in favor of PIS-enabled payments as they become widely accepted.
U.K. Light Touch Approach to Payments
Despite a high market share of the combined entity in the supply of services enabling customer to business (C2B) payments, regulators concluded that the company would still face competition and the transaction won’t likely raise antitrust concerns. The CMA’s market definition seems, at least from the summary of the decision, much wider than the one the European Commission adopted in a similar deal between Mastercard and Nets. In both transactions the main markets under scrutiny were A2A payment services, but EU regulators went further and defined the market as A2A core infrastructure services as managed services. Under this narrow definition, the Mastercard-Nets deal raised significant concerns and the parties were required to submit remedies to appease regulators. Though there is little evidence yet, the U.K.’s light-touch antitrust approach to fintech M&A may seek to lure companies into the country post Brexit.
Competitors May Seek New M&A Opportunities
Paypal, American Express, TrueLayer, FIS, Global Payments and others peers in the payment ecosystem may be on the hunt for new deals as many companies are seeking to become a truly vertically integrated system to play a role in the $139 trillion market for A2A transactions that run outside the card networks. Antitrust regulators weren’t particularly hard on Visa and Mastercard when they acquired Plaid (UK), Nets (EU) and Vocalink (UK) respectively, suggesting that further consolidation will likely be allowed by regulators.
