How badly does Plaid need Visa to take it over?
Plaid may be a more problematic acquisition than Visa made it out to be. But without Visa, those problems were likely to get a lot worse.
Some banks are uneasy with how Plaid collects bank customer data for Venmo and other third-party applications. PNC, for example, is one large bank that’s blocked Plaid from automatically enrolling bank customers in Venmo, citing concerns about rising fraud from third-party aggregators handling its data.
Dissatisfied with Plaid’s approach, PNC now requires its customers to manually input account data to add Venmo, and the onboarding process can take a couple of days. Experts say other banks—particularly smaller financial institutions—share PNC’s concerns.
Visa CEO Al Kelly has been upfront about this challenge.
“We know some banks prefer Plaid operate differently in some cases,” Kelly said during a press conference Monday afternoon to discuss Visa's agreement to acquire Plaid. “We intend to address those concerns while not diminishing the value for developers.”
Visa could leverage its longtime trusted role with banks to play mediator. But as Visa and Mastercard steadily evolve beyond their roots as bank-owned associations to build real-time and account-to-account global payment rails through major acquisitions and partnerships, banks may look differently at the card networks.
Before PNC changes its policy, the issuer wants clarity about how all kinds of third parties capture and use its customer data.
“If you look at the volume on our network, most of it is coming from data aggregators hitting our mainframe multiple times a day, coming in and scraping screen data for all kinds of purposes,” said Karen Larrimer, PNC’s head of retail banking and chief customer officer.
Banks worry about the lack of standards in the way data aggregators operate, and are looking to other members of the industry for help. One example is the Financial Data Exchange, a nonprofit formed in the fall of 2018 to establish common ground for financial data sharing. Plaid joined the Exchange, along with Visa, PNC and several other banks.
Steve Smith, CEO of data aggregator Finicity, an FDC member, sees Visa’s purchase of Plaid as helpful in finding harmony among industry participants working to iron out friction banks feel from a mass of data aggregators.
Issues such as PNC’s blocking of Plaid for Venmo users "are simply evidence of growing pains within the industry,” Smith said.
Others see Visa’s purchase of Plaid as a potential path toward redefining the way banks serve data to all types of companies that connect to banks and providers of related services.
Plaid could give Visa a new role in managing data across the expanding array of payment rails, including the internet of things, suggested Richard Crone, CEO of Crone Consulting LLC.
“Visa could become like the Apple Inc. for financial data, defining the revenue streams and compensation of parties,” Crone said.
At the very least, Visa’s influence on Plaid could introduce a different discipline and a set of rules for banks that could propel smoother collaboration with Plaid and other data aggregators, he added.
Banks concerned about the regulatory gray areas when problems arise from data-sharing are looking for the government to provide clearer guidelines. The American Bankers Association flagged such hot-button issues in recent testimony to Congress.
“Legacy processes known as ‘screen scraping’ require users to forfeit their bank username and password, granting technology companies unfettered access to a customer’s most sensitive data,” the ABA said.
Banks, aggregators and technology companies must move away from these legacy technologies that create risk, the ABA advised.
Collaboration and the use of APIs can help make rapid progress toward this goal, the ABA said. Consumers should expect that data-sharing is limited to the data needed to provide the service they are authorized and maintain these data as long as necessary.
“Services that go beyond financial account aggregation, such as money movement, present different risks and should be subject to separate agreements and require separate informed consent," the ABA said.
The global push toward consumer data-sharing is inevitable, but banks may remain wary about the long-term effects of these trends.
Zach Perret, Plaid’s co-founder and CEO, recently forecast that fintechs will add capabilities to support checking and savings accounts and card payments as the financial services industry marches toward “demographically tailored” products.
“The days of big-box banking — all things to all people — are over,” Perret said in a recent LinkedIn post.