Two weeks ago, VISA announced that signed an agreement to acquire Plaid, a fintech that allows consumers to connect their bank accounts to apps like Venmo to enable mobile payments, among other things. By all accounts, VISA paid a significant premium to buy Plaid, shelling out $5.3 billion, or, by one account, twice Plaid’s late-2018 private valuation.
If you know anything about VISA’s role in the payments ecosystem, it isn’t too surprising that VISA was willing to pay top dollar. VISA views itself as the one indispensable player in the payments ecosystem and works hard to perpetuate its role as the ecosystem develops. Because Plaid gives consumers a way around using its credit cards as the payment mechanism in consumer apps, Plaid was a potential threat to VISA’s hegemony. Though Plaid, developers can enable apps to verify consumer’s banking credentials and accept payments directly out of their bank accounts. Cheaper for merchants, convenient for consumers. Maybe not so good for VISA and other credit card providers.
Plaid’s method for accessing consumer bank accounts, pejoratively known as “screen-scraping”, is not seen as ideal from a security standpoint and is unpopular with the banks because it tends to disintermediate their customers. When you add your bank account to Venmo, you probably think that your bank has endorsed the connection. It hasn’t and would prefer that transactions involving your bank account be conducted through the bank itself, not a third party fintech.
Nonetheless, VISA’s press release contained glowing praise from both JP Morgan Chase and PayPal. Gordon Smith, co-president, JPMorgan Chase, opined that the acquisition was “an important development in giving consumers more security and control over how their financial data is used” and that Chase would “look forward to partnering with Visa to continue building a great experience for our shared customers.” For his part, Dan Schulman, President and CEO of PayPal, played the Swiss card, noting that PayPal has “strong relationships with both Visa and Plaid” and that the combination would give PayPal an opportunity to enhance its products due to “the security and scale of Visa’s global network.”
So, here you have Chase, the banks’ bell cow and one of the standard-bearers of Zelle (the banks’ payments consortium that competes directly with PayPal’s Venmo and with VISA) approving VISA taking Plaid, another fintech with disruptive technology, under its wing. Why would that be? One good theory is that the devil you know is less dangerous than the devil you don’t. In the payments ecosystem, these players have invested heavily in the technology and security necessary to manage the enormous and complex risks in this highly-regulated, fast-moving world. If security remains one of the main reasons that consumers are still wary of adopting new payments paradigms, wouldn’t it make sense to brand these new methods with trusted names like Chase, VISA and PayPal? And not incidentally, to set the bar for security?