Why 2020 is the year of fintech and blockchain acquisitions

Visa, the world's second-largest card payment firm, has this week inked a $5.3 billion deal to acquire Plaid, a modern fintech success story.

Despite launching in just 2013, Plaid has quickly risen to become a prominent name in the financial services space, since its products allow customers to safely interact and spend with thousands of apps—including the popular cryptocurrency exchange Coinbase. This success has helped Plaid earn a reputation as one of the first fintech unicorns, since the company was already valued at $2.65 billion in 2018 following a $250 million funding round.

Strategic fintech acquisitions

According to Visa, more than one-quarter of those with a US bank account have already used Plaid's services, whereas fintech applications are now used by more than three quarters of the world's population. Perhaps this is why Visa was willing to pay double its last private valuation to get its hands on the firm—forking over $4.9 billion in cash and approximately $400 million in equity as part of the deal.

In its recent release, Visa highlighted the strategic nature of the acquisition, noting that Plaid will be instrumental in helping Visa expand into new businesses, as well as expand its existing business offerings.

"The acquisition, combined with our many fintech efforts already underway, will position Visa to deliver even more value for developers, financial institutions and consumers," said Al Kelly, CEO and chairman of Visa.

PayPal is another payment giant that has recently ramped up its fintech acquisition efforts, finalizing the purchase of deal-finding platform Honey earlier this month. It appears that PayPal is looking to better compete with fintech apps, including Square's Bitcoin-enabled Cash App.

It isn't just old finance companies hoovering up fintechs either. Earlier this week, Dixintong Technology Group, a subsidiary of D.Phone—one of China's largest mobile phone retailers—acquired a stake in Monsoon Blockchain. The agreement was signed for an undisclosed sum on 7 January, and saw the retail giant purchase a minority stake in the blockchain company, which offers a decentralized storage network based on the Ethereum blockchain.

This is the most recent of a string of blockchain company buyouts as of late, with the likes of Poloniex and Shadow Financial Systems being purchased by firms primarily dealing with finance.

The democratization of finance

"The finance sector has enjoyed a comfortable moat for centuries now, but thanks to the invention of the internet the democratization of finance is finally taking place," Mati Greenspan, founder of Quantum Economics, told Decrypt. "The old school banks and institutions do realize that blockchain and fintech projects are after their lunch though and are not about to go down without a fight."

At least part of the reason behind the recent spate of blockchain company buyouts appears to be a simple exercise in efficiency—since it enables firms to immediately get a foothold in an industry recently predicted to grow at a compound annual growth rate of 66.2% between now and 2027.

As such, getting an early start could yield a significant return, while the practice is an excellent way to quickly consolidate power and hire in new talent—particularly since blockchain is reportedly the most desirable hard skill in 2020.

Should this trend continue into 2020, the lines between incumbent finance, fintech innovators and blockchain startups could become increasingly blurred.