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Mastercard Inc. is making a bigger bet on open banking as consumers look to use their banking and financial credentials with more online services.
The company announced Tuesday that it plans to acquire Finicity, an open-banking company, for $825 million, with for an additional $160 million earn out for existing Finicity shareholders. Finicity has relationships with banks and other financial providers, and the company helps third-party platforms leverage financial credentials in a secure platform.
Finicity is part of the open-banking movement, which Mastercard MA, +0.83% Chief Financial Officer Sachin Mehra called “clearly a strategically important area for Mastercard.” More people are linking up with digital services like money management platforms or online lending applications, and those services need to safely tap into users’ bank financial credentials in order to safely use money, a practice that relies on open-banking technology.
Mehra told MarketWatch that Mastercard has been involved in open banking in Europe and deemed the Finicity acquisition the best way “to make good headway in the U.S. in an accelerated manner and leverage that for more global coverage in other countries.” He said the two companies also are in “strong alignment on data management principles” as far as customer privacy.
Read: Mastercard stock gets rare downgrade at Oppenheimer
He also sees room to expand into “new and different verticals” including credit decisions for small businesses and personal financial management. Currently Finicity is strong in the mortgage industry and has “the best bank connectivity in the U.S.,” according to Mehra.
“Over the past three months, as we’ve seen what’s happened with the pandemic and COVID, we’ve seen the world go more digital and there’s greater demand for capabilities that don’t require face-to-face interaction,” he said.
Analysts generally praised the combination. “We like the deal—which feels very similar to Visa’s V, +1.56% Plaid transaction—as it further strengthens Mastercard’s position with fintechs and in open banking,” wrote Barclays analyst Ramsey El-Assal, who rates the stock at overweight with a $335 target price.
See more: Visa makes another move beyond credit cards with $5.3 billion deal for Plaid
Keefe, Bruyette, & Woods analyst Sanjay Sakhrani wrote that he was “not surprised by this acquisition as open banking has been a focus area for Mastercard” and since Finicity is one of the top-three players in this area, in his view. “We view it as a net positive for Mastercard as it further strengthens Mastercard’s positioning with fintechs and, given their relationship with banks, provides them the opportunity to scale the platform faster and internationally,” he said.
Sakhrani has an outperform rating and $371 target on the shares.
Mastercard shares are up 1.3% in Tuesday trading. They’ve rallied 52% over the past three months as the S&P 500 SPX, +0.43% has gained 41%.
