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Visa’s €1.8bn Acquisition of Tink

By Wilma Tillqvist (Stockholm School of Economics) Martín Palomar, Olivier Baverez and Léo Clément (HEC Paris)

Photo: Rupixen (Unsplash)

 

Overview of the deal


Acquirer: Visa

Target: Tink AB

Total Transaction Size: $1.8B

Closed date: 24th June 2021


FinTech has challenged and transformed parts of the financial services sector. Visa’s recently announced €1.8B acquisition of the Swedish open banking platform Tink can be seen in this light as Visa looks to expand its tech capabilities. Visa recently tried to expand into the open banking landscape via its attempt to acquire Plaid, but the acquisition failed due to antitrust issues. The partnership with Tink shows that Visa has not given up its attempts, as Visa and Tink now together seek to accelerate innovation in European open banking. Similar moves are seen among competitors, as illustrated by Mastercard’s acquisition of Finicity in 2020. The Tink acquisition is subject to regulatory approvals, which could be a risk surrounding the deal considering the Plaid outcome. However, if approved, the acquisition has the potential to provide benefits to both Visa and Tink, including growth, innovation and diversification.


The €1.8B consideration, inclusive of cash and retention incentives, will be funded by Visa using cash. Tink’s brand, management team and headquarters will be retained.


“By bringing together Visa’s network of networks and Tink’s open banking capabilities we will deliver increased value to European consumers and businesses with tools to make their financial lives more simple, reliable and secure.” – Al Kelly, CEO and Chairman of Visa

Company Details: (Acquirer - Visa Inc.)


The payments technology company Visa is a global leader in digital payments, active in more than 200 countries. The company processes transactions (authorization, clearing and settlement) via the network VisaNet, offers payment products such as credit cards and provides value-added services. In 2020, the company processed ~140.8B transactions and 3.5B cards were in issue. Visa is publicly listed on the NYSE (NYSE:V).


Founded in 1958, headquartered in San Francisco, California (USA)

CEO: Alfred Kelly

Number of employees: 20,500

Market Cap: $508.9B (as of 06/07/2021)

EV: $514.7B

LTM Revenue: $21.3B

LTM EBITDA: $14.4B

LTM EV/Revenue: 24.1x

LTM EV/EBITDA: 35.8x


Company Details: (Target - Tink AB)


Stockholm-headquartered Tink is an open banking platform that connects to over 3,400 banks and institutions across 18 markets, primarily in Europe. The platform uses a single API, and the product portfolio allows customers to perform account and income checks, access transaction data, initiate payments and build personal finance management applications.


Founded in 2012, headquartered in Stockholm, Sweden

CEO: Daniel Kjellén

Number of employees: 400

Market Cap: N/A (privately held company)

Revenue: SEK 114.5M (FY 2019)


Projections and Assumptions

Short-term consequences


First, the fintech Tink offers its technology to more than 3,400 financial institutions, representing 250M customers in Europe. The merger will, therefore, in the short term, bring new customers to Visa. Visa also wants to become the reference in bank-startup relations and avoid the antitrust sanctions it could have faced a few months ago. Indeed, Visa tried to get its hands on the open banking specialist Plaid.


Recently, Europe implemented the PSD2 directive making it easier for third parties to access customer banking data. This gives Visa a foothold in a European market with strong growth potential.


Moreover, this acquisition will allow Visa to catch up with its competitor Mastercard, which has decided to adopt an aggressive acquisition strategy. In 2020, Mastercard completed the acquisition of Finicity, an open banking provider in North America. Open banking is considered as a crucial market for the future of payments systems, which justifies stratospheric valuation multiples (Visa pays about 50 times revenue for Tink and Mastercard paid more than 50 times revenue for Finicity). In the short term, Visa had to lead this rather “defensive” acquisition to catch up.


Additionally, Visa declared that this acquisition will not change the company's dividend or share buyback policy.


Long-term Upsides


Visa’s revenues mainly come from the commission charged at each payment with a Visa card. This acquisition will lead to the diversification of Visa’s revenue in a fast-growing sector. Open banking market size accounts for more than $8B and is expected to grow at a CAGR of 25% over the period 2021-2026. This is one of the rare acquisitions of Visa outside its core business (payments, credit and debit card).


Tink will benefit from Visa’s secure and innovative platform in resilience, cybersecurity and data protection (as one risk of open banking is the protection of personal banking data). Visa’s economical resources and network (which records more than 65k transactions per second) are expected to boost Tink’s growth.


Long-term synergies are possible. Visa will use Tink’s data and single API to enrich its offers to clients (especially to neobanks and financial institutions). Via this API, Visa can propose much more payment processes to clients. This acquisition is a way for Visa to anticipate the long-term evolutions of payment processing.


Risks and Uncertainties

If we think of the deal’s political landscape, we get a set of mixed signals coming from regulators and policymakers. First, the European Union encourages the principle of Open Banking which aims to spread access to financial information of institutions and clients (provided they consent to it) for the benefit of customers and businesses around Europe. This is one of Visa’s stated objectives and is part of Tink’s usual operations. However, Europe is equally keen on enforcing its unparalleled regulations on data protection and privacy. The GDPR rules have amounted to €292M so far and force businesses to change their model. There are over 440 third party providers of open banking services. If Visa expects to gain an advantage through this acquisition it will have to make Tink’s contribution outperform that of its industry peers all the while respecting GDPR.


This deal comes six months after Visa was denied its intention to acquire Plaid by the US Department of Justice on antitrust grounds. A leaked internal document from Visa in 2019 revealed top-ranking executives feared Plaid would threaten Visa’s position in the US payment services market. Rushing to acquire Tink thereafter tells us Visa is indeed looking to integrate open banking activities into its composition, and that is precisely what they will do by acquiring Tink. Nonetheless, their position remains vulnerable in the US since Tink operates mainly in Europe. Although Visa may acquire expertise in open banking resource management, the company still lacks Plaid’s expertise in the American financial information market which is different from Europe’s as they have noted themselves.


“Europe is a very different open banking market to the USA, with far more players and a regulated standard, [...], many of the concerns that led to the investigation into the Visa/Plaid deal may apply here” - (Simon Taylor, Financial Technology Consultancy 11:FS)

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