The fintech community was both surprised and energized by recent news that
The industry was surprised because no one knew that such a deal was in the works, and energized because the transaction demonstrates that open banking and aggressive “platformization” really are the future of financial services.
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The deal will accelerate San Francisco-based Plaid’s international rollout with the help of Visa’s deep network of relationships in financial services. And Visa’s connections will help Plaid normalize its sometime contentious relationship with legacy financial institutions, a key concern of short-term-focused Wall Street analysts.
But there is so much more to the combination than near-term synergies. Visa has laid down an unusually bold strategic bet on the long-term future of financial services. It wants to be the platform that enables the open banking and open payments revolution internationally.
The combination puts Visa-Plaid in the very center of the emerging data economy and gives it a commanding lead in integrated data/payments solutions for fintech, big tech and others. To understand why this is so important, let’s take a look at who wins and loses from the Visa-Plaid deal.
The big winner is clearly Visa. The combined platform will have the scale and market power to set the terms of engagement in its relationships with fintechs, big tech and banks. This will not just be an intermediate utility, as Visa was in its early days.
The combined company will, like Amazon, be a powerful innovation platform with substantial control about how financial services are delivered globally. Visa describes this as a network of networks strategy for funds movement by any method (card, ACH, real-time payments) around the world, now enhanced by one of the strongest personal financial data providers in the world.
The fintechs are also winners, at least for a while. Once Visa and Plaid are combined into a common technology framework upon which fintech developers can build integrated products, that platform will begin to generate supersized fintech applications that can compete at scale with anyone.
But there are large clouds ahead for the fintechs. Big platforms have a tendency to dominate their customers. As any seller of goods on Amazon will say, when a company needs to be on a dominant platform for its business to work, that platform can squeeze seller margins at will.
The business becomes just another marginally profitable input into the platform’s highly profitable model.
The big techs probably view this transaction as a marginally positive development. It’s easier for them to deal with one company for their financial data and payments needs rather than two. And they will be in a better position to take care of their own interests in dealing with a bulked-up Visa than fintech startups.
As is often the case these days, the biggest losers are the banks. It has been many years now since the banks lost control of Visa. Visa knows that the banks can’t walk away from their card-based cash cow. And most banks (perhaps, with the exception of JPMorgan Chase) will stand by dithering while Visa builds a dominant open banking platform.
This platform will separate the banks from their customers, and help turn them into the utilities they so dread becoming.
There’s another threat for the banks to worry about if Plaid, with Visa’s support, fulfills its ambition of being the clearinghouse for individual consumer consent/control over personal financial data. If the combined entity succeeds in this, it will permanently disintermediate banks from what is likely to be a key customer acquisition/control/retention point in the digital future. Bold action will be required for banks that want to avoid this fate.
Finally, let’s not forget Mastercard. It has generally been viewed as more technologically adept and entrepreneurial than Visa in open banking, although there’s not that much of a difference in practice.
Mastercard will undoubtedly try to keep up and build its own competing platform, but Plaid gives Visa an enormous boost in the race for control of the future of digital finance. The same logic that is driving Visa and Plaid together could also lead Mastercard to try to buy Yodlee or Finicity, for example. But doing that just got a lot tougher now that Plaid has demonstrated the strategic and financial value of data aggregators.
Visa’s Plaid deal shows that an old-school financial services titan isn’t resting on its laurels. It really can make bold strategic bets on the future. As it looks forward to the coming era of open banking, Visa has made sure that, in the words of one of its old advertising slogans: “It’s everywhere it wants to be.”
