No Visa/Plaid

As predicted in my June blog.. We heard today that Plaid will not happen.

Visa is my second largest holding and I’m buying more tomorrow. Why? Plaid would have been:

1. Visa is building an amazing team, and Plaid is not the right core (in tech, bank permission or in data rights). 
2. $5B for a company running at a ~$35M Rev (with Paypal as their largest customer) is beyond “good will”.  Apple’s Ring.. their star ship campus is $5B.. there must be something better to buy than a team of 340.. with 300 of them in screen scraping. 
3. Data rights. Plaid will likely need to cease and renew all consumer agreements. Few customers are aware that their one time share of bank credentials to link their bank account led to 7 years of access to validate balances.
4. Bank agreements.. banks certainly want to support the distribution of data under consumer permissions.. but this all starts with the bank and the consumer. A bank can’t grant plaid something it doesn’t have.. this is why Banks can’t give Plaid (or Visa) the agreement they want 
5. Per my “open banking” blog, Banks are creating their own API service in Akoya. 
6. Investors should cheer Visa’s pull back here. Less regulatory distraction, less org distraction and more fuel for something that makes sense. 

As I related in Open Banking, Open Payments and Trust Networks, Operating Agreements are the #1 factor for investors to asses when evaluating network value. Visa/MA Operating agreements to 15+ yrs to establish and to this day take more than 1yr to change. While this is cumbersome, no network can scale without a firm understanding (by all participants) of revenue, risks and operating costs.

While there may be a technical end run to obtain data and deliver value (aggregation), the hard work of operating agreements must be done. Theoretically, Visa’s existing bank operating agreements could have been extended. After all, they are one of the few entities that have agreement with every bank. But as I mentioned previously, networks become brittle as they expand… their common services become entrenched commodity infrastructure, and most importantly the observation that Trust is Domain Specific, making extension of “trust” in new services … well.. problematic. From my blog:

As networks scale → network effects take hold. Larger networks become more efficient increasing the value of their core services increases, connection costs drop, and ability to retain each node increases. Payment is becoming a commodity service, and payments specialists functions are being assimilated (as their function MATURES they are no longer special). However, as networks scale, they become more rigid and their ability to create NEW services (beyond payments) diminishes. After all, existing participants connect with a purpose (within an operating agreement). Additionally, trust is domain specific, thus current networks are constrained by BOTH the rigidity that comes with scale and by trust extension.