eResearch | As major industries get disrupted by start-ups that leverage technology, large established enterprises such as Paypal Holdings Inc. (NASDAQ: PYPL) and Visa Inc. (NYSE: V) have been acquiring start-ups rather than starting their own competitive ventures from scratch.
According to CB Insights, in 2019 YTD (as of December 11, 2019), financial services firms invested a record $9.6 billion across 368 deals, a 500% increase over the same period in 2014. In addition to FinTech’s enormous corporate venture activity, funding for the industry has also grown to a record $24.6 billion.
Financial services firms continue to accelerate their Corporate Venture Capital (CVC) activity, with annual deal activity up over five times (5x) in 2018 compared with 2014.
Chart 1: Quarterly Financial Services CVC-Backed Deals and Financing
Paypal Acquires Honey
In November 2019, PayPal, an online payment services company, announced the acquisition of Honey Science Corporation for $4 billion.
Honey is an application that is added as an extension on web browsers such as Google Chrome, which automatically finds coupons and tracks prices when buying products and services online. Last year, Honey boasted that users saved over $800 million through its application.
Honey currently has 17 million monthly active users, predominantly millennial, with approximately 30,000 merchant partnerships in industries including fashion, technology, travel, and food.
The acquisition works synergistically as Honey can expand its application through PayPal’s 300 million user base while PayPal can enhance user experience for its existing customers while collecting relevant data.
Visa Acquires Plaid
Last week, Visa, the second largest card payment company, announced acquisition of Plaid for $5.3 billion.
Plaid is a developer of financial services Application Platform Interfaces (“API”), which are platforms needed for consumers to securely connect their bank accounts and share sensitive information with thousands of online applications.
According to EY’s Global Fintech Adoption Index, online payments through applications have become the standard as 75% of the world’s internet users made payments through FinTech applications in 2019 compared with only 18% in 2015.
As Visa constantly expands its business through partnerships with various FinTech applications, Plaid will allow developers working with Visa to easily integrate and enhance its capabilities with Visa’s core business while giving consumers security and control over their financial data.
In 2020, the splurge of tech deals are not likely to stop due to continued expectations of buy-outs from industry leaders who want to maintain a competitive edge while de-risking against future uncertainties.
As acquisitions become the key method for many mature companies to continue leading their respective markets, how will it affect the competitive landscape? Will anti-trust implications be of concern?
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Visa Inc. (NYSE: V)
- visa.com
- Headquartered in San Francisco, United States, Visa operates as a payments technology, debit and credit card company.
- Visa operates VisaNet, a processing network that enables authorization, clearing, and settlement of payment transactions among consumers, merchants, financial institutions, businesses, strategic partners, and government entities.
- Visa is currently trading at $206.80 with a market cap of $445.6 billion.
PayPal Holdings, Inc. (NASDAQ: PYPL)
- paypal.com
- Headquartered in San Jose, United States, PayPal operates as a digital payments company, enabling digital and mobile payments among consumers and merchants worldwide.
- PayPal’s solutions include PayPal, PayPal Credit, Braintree, Venmo, Xoom, and iZettle products.
- PayPal is currently trading at $116.61 with a market cap of $136.8 billion.
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