
Visa, Plaid, networks, and jobs - i_am_not_elon
https://stratechery.com/2020/visa-plaid-networks-and-jobs/
======
cushychicken
_“He had three girls working on Burroughs bookkeeping machines, each handling
1,000 to 1,500 accounts. I looked at the size of the accounts: $4.58. $12.82.
And he was sending out monthly bills on these accounts. Then the customers
paid him maybe three or four months later. Think of what this man was spending
on postage, labor, envelopes, stationery! His accounts receivables were
dragging him under.”_

I never got why credit cards were such a big deal for merchants, until reading
this.

I never got why credit cards were such a big deal for consumers, until I heard
this: [https://www.npr.org/2019/06/26/736352315/episode-922-the-
cos...](https://www.npr.org/2019/06/26/736352315/episode-922-the-cost-of-
getting-your-money-back)

What a week of learning about credit cards it has been!

~~~
pavlov
I was born in 1980, and do remember our family having a credit account at the
local grocery store. This was in Helsinki, Finland.

I think our account number was 14? Simple enough for a child to remember.

Around age 9 I was using the account on my own to buy food after school. I'd
state the account number, and the cashier would write the credit down with a
pen into a special notepad they kept under the cash register.

~~~
csunbird
We also had a similar system in Turkey too, with local grocery shops. The
owner would have two notebooks per customer, one would stay at the store and
one would be given to customer. Whenever you needed to buy something but you
wanted to pay later, the merchant would put the transaction on his notebook
with a copy on your notebook, so at the end of the month you would simply
bring your notebook and cross reference the transactions and pay your debt.

~~~
Semaphor
Maybe it’s a Turkish thing? Because the owner of the copy shop I mentioned [0]
is a Turkish immigrant ;)

[0]:
[https://news.ycombinator.com/item?id=22047151](https://news.ycombinator.com/item?id=22047151)

~~~
csunbird
It definitely could be!

------
igammarays
Huh. And all this time, as a person who uses credit cards heavily, but never
paid a penny on interest for years, but used all my card benefits, I thought I
was cheating the banks. This is the first time I learned that they make money
on each transaction regardless of interest or late payment fees. That’s a
revelation.

~~~
basch
That 3% is also baked into the price of goods at this point, so youre paying
it even when using cash.

However, some people think the credit card companies are inflating the price
of goods with rewards, without taking into account how expensive cash is to
deal with. To count, to detect counterfeiting, to lock up, to trust employees,
to move. Processing cash isnt cheap, and can involve considerable risk,
including increased IRS scrutiny.

Handling money is a cost, like rent and electricity, built into everything we
do. Credit card networks are much more efficient than existing alternatives.

~~~
nordsieck
> That 3% is also baked into the price of goods at this point, so youre paying
> it even when using cash.

Every once in a while, I'll run into places that do a cash discount, usually
smaller businesses. It's super common at gas stations - even big chains.

~~~
basch
I have to feel its misguided in some cases. Credit card transaction fees hit
the hardest on small purchases, as they take a larger percent. A business
thats lots of tiny transactions might come out slightly ahead with cash, but
now youre losing customers, and maybe not book keeping accurately enough to be
legally compliant.

I have noticed gas stations are more prone to this (along with very small
business), although it happens on occasion at restaurants as well. I figure,
with 3% restaurant rewards, I break even at 3% restaurant charge and or using
cash.

~~~
nordsieck
> A business thats lots of tiny transactions might come out slightly ahead
> with cash, but now youre losing customers

Why would businesses that offers a cash discount (which means they also accept
credit/debit) lose customers?

~~~
smileysteve
Because card paying members may choose to shop the store where they don't feel
like they're losing.

Ie; gas station 1 has a 3c cash discount. Gas station 2 has no discount, but
you don't feel like you're not getting the discount. Gas station 3 can even
compete by having a 1c credit discount.

------
rahimnathwani
"At first glance, open banking might seem to be a problem for Plaid, but ...
developers will still prefer to use one well-built API that abstracts away
thousands of financial institutions"

This type of centralisation makes me sad, but it's probably true for most
startups. By using Plaid or an Open Banking service from another party (e.g.
Experian) you'll pay fees to get information you can get for free if you
integrate directly with the banks.

Even though the open banking APIs are uniform, any company wishing to use them
still has to register with each and every bank, and test the integration works
with each one. Until you've done it once, it's hard to know whether it will be
easy (you write the code once, and it works flawlessly for all banks) or you
have edge cases (e.g. some banks have funny timeout issues). So if you're a
developer on a deadline, you will likely prefer to use a single API.

~~~
nemothekid
> _you 'll pay fees to get information you can get for free if you integrate
> directly with the banks_

For the data Plaid was providing, this isn't really true at all in the US.
Last I checked, the big banks were very guarded in their API access and you
either had to have (1) a large payment (2) a high minimum balance and (3) pay
for an audit from their auditor of choice.

I _think_ Europe is different in this regard but the US players really had no
incentive to do anything Plaid offered.

~~~
rahimnathwani
"For the data Plaid was providing, this isn't really true at all in the US."

Right, I'm talking specifically about open banking, which isn't a thing in the
US.

------
psoots
And then it all falls apart when Plaid gets hacked and millions of people's
_actual bank account usernames and password_ get stolen. That is not a safe
premise to start a business (or to acquire one).

~~~
milofeynman
And because most companies that use plaid don't even show the Plaid logo, you
don't know who is directly integrated with a bank and who is using Plaid

~~~
annexrichmond
Some companies[1] indicate their Plaid dependency in their Privacy Policy,
just like it is common to do when they use Google Analytics. But yeah, it's
unfortunately not a standard.

[1] [https://zerodown.com/privacy](https://zerodown.com/privacy)

------
gigatexal
I recall a podcast a Plaid tech person did for Software Engineering Daily
where it was alluded that Plaid had moved away from using screen scraping to
something much better — it sounded like they had paid for connections to the
bigger banks — perhaps a one off API access only for Plaid or were leveraging
some other way to get around the problematic screen scraping approach.

------
jka
The narrative here is internally consistent but there are a few pieces that I
don't quite understand when it meets reality:

* It's suggested is that Visa will 'fix' the security concerns that Plaid introduces (the use of username & password collection), but it seems unclear how Visa would be able to change the fundamentals of the Plaid<->bank interactions?

* It's also theorized that European banks will prefer to use Plaid rather than a privately recommended solution (not referenced in the article) to achieve EU open banking compliance. Do Plaid have strong relationships with EU banks at present, and would it not be more likely that Plaid would implement against the existing EU open banking APIs (single implementation, no lobbying) than that Plaid would implement their own alternative (requiring per-institution implementation, and also lobbying to ensure their approach is accepted both by banks and EU regulators)?

~~~
MBCook
On #1 I assume it’s simply the fact that Visa is big enough and
stable/reliable enough that banks would be willing to do the integration to
them to get the benefits instead of doing hundreds of bespoke integrations for
little apps/services.

~~~
jka
The trusted, widespread brand angle does make sense there as a reason for
banks to choose to integrate with Visa, agreed.

But does that then imply that users authenticate with their bank via Visa
(i.e. Visa becoming an identity provider -- not totally unimaginable given
their association with customer-issued cards)? Or instead that banks would
implicitly offer this data to Plaid/Visa under their card issuance ToS,
without user authentication required?

(I'm not really asking for answers, I don't think we can really know at this
point. It just leads to questions like this and I'm curious)

~~~
judge2020
User authentication would be handled somewhere :)

But ya, I bet they're going to push hard on "provide us openid connect" in
future contract negotiations to solve the security problem.

------
cowpig
Ben Thompson talks a lot about networks and platforms in his blog, and it's
always from the perspective of the capitalist: here's a great way to capture
value and make a profit.

When he does consider the perspective of the user or consumer, it's still
indirectly from the perspective of the capitalist: users/consumers will behave
in X way, get Y value, etc, which is why [megacorp] should do Z.

I'd really like to see him take a broader view. Could he imagine a set of
rules/regulations that would result in a better outcome for the public?

I've long been thinking about this problem:

\- we all much prefer a single platform/network

\- but if there's a single platform/network, then there aren't good market
incentives on the side of the provider

This seems like such a fundamental problem in a space he writes so much about.
Ben Thompson, please think and write about this!

~~~
fatbob
Right! Banks are already regulated by the government and this seems like an
opportunity for them to improve the retail banking market by requiring
interoperation. Maybe it wouldn't work but it would be interesting to hear
from him on this topic - can the government make this market work better?

------
szhu
I had no idea how recently modern credit cards were invented until reading
that first paragraph. Wild.

[https://en.m.wikipedia.org/wiki/Visa_Inc](https://en.m.wikipedia.org/wiki/Visa_Inc).

------
guelo
> that same Treasury report highlighted the fact that the United Kingdom and
> European Union have initiatives requiring API access to bank accounts, but
> recommended a private solution.

This is the Trump government failing us and gifting the next generation's
financing needs to the next generation of rent-seekers.

~~~
RickS
I have a mixed position on this. Considered in isolation, the UK's API
regulations are a spectacular boon for customers.

Considered in the context of the rest of the UK's regulatory environment (porn
filters, etc), it seems plausible that the UK gov's push for bank APIs is less
about being kind to their citizens and more about undermining cash and pushing
all financial activity onto infrastructure that's easily accessible to a
surveillance state.

I'd like to have tech like this in America, but I don't think we have the
spine on any front. We aren't willing to hardball businesses on
timeline/featureset (for example: the partial and late rollout of chip/pin in
the US), and we aren't willing to write legislation that protects citizens
from abuse and creates punitive structures that make abuse of citizen data by
companies an economically irrational act.

In light of that, I wonder if shitty APIs are the lesser of two evils.

~~~
rswail
Minor quibble, US has chip/signature, not chip/pin. This is because the US
banking system is stupid (technical term).

------
te_chris
They have competitors though, Yodlee and Salt Edge to name but two. Have had
some 'fun' recently in the UK when the FCA introduced open banking without
actually allowing foreign companies any way to particiapte. This broke the
budgeting app that I use (Pocketsmith
[https://www.pocketsmith.com](https://www.pocketsmith.com)) because Yodlee,
the bank feed provider they used, isn't a UK company and neither are they,
thus they didn't comply with the regulations.

Pocketsmith got around this by adding feeds from Salt Edge, thankfully. I've
actually become quite dependent on having proper cashflow, balance sheet and P
+ L statements for my personal finances.

~~~
snowAbstraction
There is the Swedish company Tink in this space too.

[https://tink.com/](https://tink.com/)

