Plaid is known for its application programming interface that connects consumer bank accounts to financial applications. The price is around $250 million, paid in a blend of cash and stock, though we couldn't tell you the exact mix of each.
The deal shows where Plaid is going. The company had previously intended to sell itself to the consumer credit giant before the deal ran into a regulatory wall; since then, Plaid has raised capital and expanded its valuation by a factor of four.
Plaid is best known for what it does best, but it is buying a company that offers verification services for the fintech world, which is distinct from what it is best known for. ID verification and help withKYC rules are offered by Cognito.
There is work to be done behind the scenes to ensure that your service is not facilitating criminal activity if you deal with money in motion. Your company is named HSBC. The acquiring entity is bringing all of the smaller firm's staff, including its three co-founders, with it.
Plaid puts it in between consumers and a host of financial applications and services. I would add a sticky place to be for a good business. When it is possible to do more, why only shuttle data back and forth?
The company, flush with external cash and with equity worth north of $13 billion to use in deals, is adding to its roster of services that it can offer customers.
The transaction was talked about by the CEO of Plaid and the CEO of Cognito. The talks started as a chat about a partnership that evolved into a sale, and it is believed that the exit price was attractive to its investors and staff.
The deal makes sense for Plaid. It is an extremely complex problem to verify users for fintech applications. That means that Plaid can get past what Cognito has so far. With customers asking for ways to more quickly onboard users per Perret, Plaid knew that it had customer demand for what the smaller company had built, and buying Cognito means that it can instantly layer on another service to its already growing customer base.
The deal is similar to Microsoft acquiring an enterprise software company, knowing that it can sell its product via existing channels and customer relationships. By selling to Plaid, Cognito will be able to scale its in-market footprint much more quickly than it could by itself. A rich vein for the larger company to mine is the fact that Plaid has over 5,000 customers.
Perret was asked about the direction of Plaid. Our hunch was that it would build an ever-wider range of services for customers of its core product, as they would add them to their existing contracts. Our thesis felt correct as the add-on will be priced as an add-on.
The CEO said that the company had recently launched a product called "Signal" that was intended to help reduce fraud. The consumer portal built by Plaid allows end- users to check their connection points.
That is illustrative. The work that Plaid is doing to build more services atop its core product feels very similar to the work that Stripe is doing on top and adjacent to its payments nucleus. It has a consumer component as well. The company is firmly a B2B company today.
You can imagine what could happen in the future. If consumers use Plaid as a way to connect to the larger web of fintech and fin services, the company could build relationships with many individuals. It would give it sway on both ends of the relationship.
It is hoped that Plaid will use its relationships on both sides of the coin to do lots. Credit scoring can be reinvented. It would be good for everyone.
The deal with Cognito is not the final acquisition that we anticipate from Plaid before its public offering. We will have more when we have it.
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