Fintech firm Plaid is making its first major acquisition.
The company announced on Tuesday it would buy a similar start-up called Quovo for just south of $200 million, according to a source familiar with the deal, who asked not to be named because negotiations were private.
Plaid’s technology links bank account to fintech apps like Venmo, Robinhood, Coinbase, and Acorns. As of December, the San Francisco-based company said 25 percent of people in the U.S. with bank accounts had connected to Plaid through an app. The start-up recently raised $250 million at a $2.7 billion valuation and added Kleiner Perkins partner Mary Meeker to its board.
Like Plaid, Quovo also links customers’ financial accounts with consumer-facing apps. But the New York-based firm has historically focused on more investment and brokerage data. Its customers range from fintech companies including Betterment, Wealthfront and SoFi to incumbents like Stifel, Vanguard, Empower Retirement, and John Hancock.
The marriage tees up Plaid for expansion and gives it another leg up in an application programming interface business it was already beginningto dominate.
The companies will now exist on a single platform that developers and large companies can use to build any financial application, according to Plaid’s co-founders. CEO Zach Perret said the deal will allow Plaid to get a more “holistic” view of a users’s financial life.
He used the example of a fintech lending app. In order to see whether or not someone could pay back a loan, an app might ask for a user’s permission to see the balance in their checking account. Plaid can provide that. But adding Quovo gives them a view of other assets that might be in a brokerage account.
“It creates a more holistic financial picture,” Perret told CNBC. “That’s crucial when you think about the future of finance becoming more digital.”
In order to link bank accounts with Venmo and other applications rely on a protocol known as application programming interface, or API.
Plaid’s APIs have attracted investments from the venture arms of Goldman Sachs, Citigroup and American Express, and some say, has helped accelerate the growth of the payment sector over the past five years. The San Francisco-based firm is also backed by Andreessen Horowitz, Index Ventures, NEA, the venture arm of Google, and Kleiner Perkins, among others.
The analogy of a hair dryer often helps explain an API. When trying to plug a U.S. appliance into a foreign outlet, the volts and the physical shape of the plug won’t line up. If the plug is jammed in, the dryer will spark, overheat, or just not work. Plaid, in this case acts as the adapter, enabling the outlet (the bank in this metaphor) to connect with the hair dryer (Venmo, to use an example) and work.
Plaid also adds analysis on top of the bank account so app users are able to do things like budgeting or expense management. It can authenticate bank accounts for direct payroll deposits and electronic bill payments, verify someone’s identity, verify someone’s balance in real time and understand income and employment.
Acquisitions are just “one tool in the toolbox” for growth, Perret said. But this one in particular didn’t happen overnight.
“We’ve known about Quovo for a long time and had been admiring them from afar,” Plaid co-founder and Chief Technology Officer William Hockey told CNBC. “As we started to look at the market going forward, a big goal was to empower a full financial picture for the user — this builds towards that vision.”