Is Plaid on Amazon`s wish list?

Predicting Amazon`s M&A targets.

It’s no secret that ‘Big Tech’ companies are in an arms race to penetrate the financial services industry. This is very bad news for incumbents in the financial services - for example Amazon, Facebook and Google pose a great threat to the underlying business models of banks because:

  1. They have the mass internet scale e.g. around 70% of the global internet traffic flows through their servers.

  2. Massive network effects with customers e.g. the most popular consumer oriented internet services (Social media, Email, eCommerce) are delivered by these companies.

  3. Technology and machine learning capabilities - these companies employ some of the greatest engineers and scientists on the planet. In fact, top Universities in Europe and the US are losing researchers to big tech (see this article).

In a research report entitled ‘Beyond Fintech: A Pragmatic Assessment of Disruptive Potential in Financial Services by the World Economic Forum (WEF) - interestingly, the report cites cloud computing, customer-facing artificial intelligence and ‘big data’ customer analytics as three domains that are becoming ever more crucial to competitive differentiation among financial services firms. All these are areas in which Amazon, Google and Facebook have gained far deeper experience over the years compared to incumbent financial services players – as such the network scale effects will make it harder for the incumbents to catch up.

Where are the opportunities for big tech?

We predict the following categories are where the big tech players can leverage their scale, expertise in big data and artificial intelligence to outmaneuver incumbent players.

Source: CB Insights.

Where is Amazon Adventuring?

Source: CB Insights.

Source: CB Insights and Marketplace Pulse. Estimated total SMB loans through the end of Q2 2019.

Why should Plaid be on Amazon`s wish list?

So far Amazon’s financial services adventures have been via its various marketplaces -offering financial services to consumers and SMBs. However, there is one area where Amazon could become a ubiquitous player in financial services (to supplement Amazon Pay), this area being developer tools and infrastructure services by leveraging Amazon Web Services (AWS).

An analysis of M&A transactions by Amazon over the past two decades suggests that the company mainly acquires businesses that align with its core divisions such as; Prime, AWS and Marketplace pillars. A look into Plaid`s technology stack reveals that the company is already heavily aligned and integrated with Amazon Web Services (AWS).

Source: Stackshare

Source: Inc.com

It’s true that AWS already boasts big financial services brands including:

  • Dow Jones - AWS helps enable the company improve time to market for its products. “Our applications were dependent on a particular database version,” Global CTO Orban says, “and a lot of redirect logic was done on a hardware load balancer. All of the non-AWS software we use work on Amazon Elastic Compute Cloud (Amazon EC2), making it possible to lift and shift, and work on optimizing the environment down the road.”

  • By migrating to AWS, FINRA (Financial Industry Regulatory Authority) has created a flexible platform that can adapt to rapidly changing market dynamics. FINRA moved about 90 percent of its data volumes to Amazon Web Services, using AWS to; capture, analyze and store a daily influx of 37 billion records.

However, by acquiring a fintech infrastructure startup like Plaid, Amazon will have the initial foundations to become such a ubiquitous infrastructure player in the emerging and fast growing fintech payments space. According to official press releases, Plaid integrates with more than 10,000 banks and covers around 20 million consumer accounts.

What could the price tag be?

The latest private VC round seems to value the company at around $2.65Bn. Assuming this is correct, and the company continues to grow its popularity among fintech developers, we predict the following acquisition value range and the years when it could occur!

We’ll keep adjusting our predictions and update this post as we crunch more data about Plaid whilst taking into account the market conditions.

As a VC why should you care?

Well, a move on Plaid by Amazon will most likely initiate a frenzy of M&A activities in the digital banking space. This will be driven primarily by the need of other tech giants and incumbent banks to counteract the chance of being outflanked. Hence, if you have a notable portfolio in the space it will most likely be an acquisition target by one of the tech giants or incumbent banks. Also, the market consolidation may create the conditions for what we call semantic digital banking 2.0 - a new wave of digital banking solutions truly built around emerging de-centralized technologies (e.g. Blockchain).

What are the chances of Amazon acquiring Plaid and other exit options?

We computed the following exit probabilities based on a number of extrapolations of Plaid’s internal KPIs, whilst taking into account; post-transaction technology integration risk, team culture, competition and predicted market conditions.

We’ll keep adjusting our predictions and update this post as we crunch more data about Plaid whilst taking into account the market conditions.


About Us

Kähler VC.X uses Big Data & AI to provide market intelligence for the venture capital sector by collecting & analyzing millions of data points from various sources / formats to identify new trends and hidden high-value opportunities.

We’ll soon start running specialist webinars for VCs covering emerging fields such as; artificial intelligence, quantum computing and homomorphic encryption.