Plaid spent most of 2020 preparing to be gobbled up by Visa. Heading into 2021, it's going it alone again — and with a potentially higher valuation and newfound freedom from a giant corporation, it might be better off.

If it had gone through, the merger with Visa would have combined a rising star of the fintech revolution with one of the old guards of the financial services industry. But Visa said last week that it was ditching the $5.3 billion deal to avoid a "protracted and complex" legal battle with the Justice Department, which had sued to block what it considered an anticompetitive merger.

"At the end of the day, it was a mutual decision," Plaid Chief Operating Officer Eric Sager told Protocol. "The DOJ lawsuit lengthens the timeline to the point where the deal just didn't make sense for either party. We just ultimately felt it was in the best interest of our customers and ecosystem of consumers for us to go our own way."

Waiting for the merger to close had put Plaid in limbo during a turbulent year. But the aborted union is seen by many as a lucky break for a startup considered one of the most important players in the fintech revolution: one which some analysts say is now poised for bigger things with Visa out of the picture.

"When Plaid chose to sell, it made sense at the time, but I see this as a blessing in disguise" Melody Brue, senior analyst with Moor Insights & Strategy, told Protocol. "Although $5.3 billion seems like a painful missed exit, it can raise additional capital now at a much higher valuation, which likely has increased even since the breakup news broke last week."

Founded in 2013, Plaid emerged as a key fintech player by providing the infrastructure that made it easier for financing institutions — including banks and startups such as Venmo, Current and Prosper — to help consumers connect their data to financial apps.

Sager said Plaid had seen the Visa acquisition, which was announced in January 2020, as a way to expand its reach: "It would have helped us potentially to accelerate some of our international efforts. It would have allowed us to collaborate on certain kinds of product initiatives, things that we can make easier than on behalf of the ecosystem, creating even better solutions for developers and consumers."

But the merger subsequently hit road bumps. Just weeks after it was announced, the pandemic hit, triggering a global economic crisis. Then in November, the Justice Department sued to block the deal, which it argued was an attempt by Visa to take out a rising competitor.

That led to the merger plan being scuttled last week. "It has been a full year since we first announced our intent to acquire Plaid, and protracted and complex litigation will likely take substantial time to fully resolve," Visa CEO Al Kelly said in a statement.

Plaid Chief Operating Officer Eric SagerPhoto: Plaid

Plaid's view of how useful the merger might have been has also changed. "A year later, with the way the world has changed, some of those things suddenly look a little bit less urgent than they did at the time," Sager said.

The Visa-Plaid deal is just one of many aborted mergers in the U.S. in recent months, many of them scrapped due to the pandemic, many of them hanging in the balance for months. Mark Batsiyan, partner at venture capital firm Inspired Capital, said the lack of clarity over the Visa merger over the past year was likely tough for the Plaid team.

"I imagine they probably didn't progress as much on their product roadmap as they would have liked because of the uncertainty of the deal," he told Protocol.

But Sager downplayed the impact of the merger process. "I don't know how much it delayed us," he said. "It's certainly true that anytime you have a deal like this, there's a certain percentage of the company, when it comes to legal teams for example, that obviously spent time on a deal of this magnitude."

Besides, Visa's plan had been to maintain Plaid as an independent company, he said: "I don't think it really slowed us down at all. We kept building all the things that we were otherwise going to build, because we had every intention of continuing to run the business independently post-close."

And there might even be an upside to some of the waiting around: Sager said the deal has given Plaid far more brand recognition.

"It brought a lot of attention to what we're doing," he said. "It's hard to judge whether it's Visa, but the mere fact that the visibility and awareness of what Plaid is doing has been raised obviously introduces a lot of folks into the equation when it comes to things like partnerships. Now when I go to prospective customers, everybody seems to know who Plaid is versus a year and a half ago when you really had to explain what we do [and] what we could offer."

In fact, Plaid recently unveiled a partnership with the payment processing services company Jack Henry & Associates. In March 2020, the startup also signed a deal with Microsoft to help users sync their financial accounts with Excel. And Plaid told Protocol that it's rolling out a new partnership with a major tech company next month.

Plaid CEO and co-founder Zach Perret said in a statement that the startup will continue to work with Visa "as an investor and partner so we can fully focus on building the infrastructure to support fintech."

Brue said scuttling the deal actually sets the stage for bigger opportunities for Plaid.

"Had Plaid consummated the relationship with Visa, it would have access to Visa's vast network of potential customers," she said. "Save for a liquidity event for investors and a nice payday for employees, that seems like the only upside at this point. As an independent company, it has the advantage of faster product decisions, better talent acquisition and a much higher valuation down the road."

Batsiyan echoed this view, saying Plaid could see even faster growth given the way the pandemic accelerated the rise of fintech.

"Fintech adoption has just gone through the roof since COVID happened," he said. "They're a nimble startup and they'll figure it out. They're well-positioned to capture a lot more value as an independent company given some of the changes that have happened."