I was struck by this bit:
'If Plaid remained free to develop its competing payment platform, then “Visa may be forced to accept lower margins or not have a competitive offering."'
My understanding is that Plaid would/could charge significantly less (up to 50% less) than Visa currently does.
And that's the value of competition. Not necessarily as a race to the bottom (as we've seen in the airline industry, but that's another topic), but in providing Visa's customers with viable, more cost-effective alternatives.
And that's been a problem (at least in the US) for a long time. Big corporations buying up potential competitors in order to maintain both their market share and their overpriced offerings.
It might be bad if their main source of incomes becomes not the transaction fees, but hidden fees or selling data about you. However, that argument requires them not doing this already :)
In a competitive industry with high fixed costs and low _marginal_ costs, a race to the bottom often leads to pricing less than _average_ costs and a reduction in service quality (or inability for providers to replace infrastructure consumed in providing service.
But that argument completely ignores the consequences to prices less than average.
If you drop your fees so low your customers get pissed, well then, you'll loose customers. Or if you can't afford to maintain infrastructure, then you'll lose customers due to your unreliability.
A race to the bottom is the reason we have 60" flat screen TVs that are better quality and cost a fraction of what a similar TV cost 10 years ago. It's a good thing.
The race to the bottom in the airline industry was entirely driven by consumers who were willing to put up with crappy seat just to save $10. They got exactly what they wanted.
That said, we are seeing a shift toward premium economy. Basically some airline said "I'll bet there are some customers will to pay more to get more" and they were right.
HN likes to talk about the "race to the bottom" as some failing of capitalism, when it's actually working exactly as it should. "The market" doesn't get it right every time - plenty of companies make the wrong trade off - but the consumer is the ultimate decision maker if the tradeoff is worth it.
An idealised race to the bottom which just eats into excessive profits would be great. But typically companies want to maintain their margins, so it's the staff that get squeezed, or the service, or the ethics, or all of the above.
And it often ends up warping the market so that choice is removed, a premium economy does not always spring up. To take your TV example, modern mainstream TVs now bundle spyware/malware/adware. Yes the hardware is better than it was, but it is being invisibly subsidised by the reduction in ethical standards. And now none of the major players can now afford not to do it if they want to compete. Is this exactly what people wanted? The market no longer offers allows them to choose and they aren't being fully informed about the implications.
It's really a failing of marketing - being unable to continue to justify the price of a product (whether it was warranted or not).
We could fix it with better regulation of product information though.
No one seriously argues against weights and measures legislation. We've supposedly had an information revolution but I still can't really trust any source of product information online.
This is a fair comment. The free market can certainly be made "better" (however one might define it) by certain interventions. Your example of weights and measures is a good one - the market benefits from an increase in knowledge of both parties in a transaction.
Another good example is FDIC insurance. We could have little to no banking regulations, but that would also introduce a lot of uncertainty and result in wild swings when the economic situation changes. Tell depositers that the gov't will back their savings helps stabilize the banking system which actually benefits the market (the same way a stable and predictable government/legal system benefits the market).
That ('we have 60" flat screen TVs that are better quality and cost a fraction of what a similar TV cost 10 years ago') is not the standard / typical meaning of a race to the bottom. TVs don't have effectively zero marginal cost. A race to the bottom is specifically about a reduction in quality that forces effectively all providers to follow or be unable to compete.
In the case of airlines, customers thought they (only) wanted the lowest price, so airlines (helped by non-transparent UIs at ticket comparison sites like Expedia, Kayak, etc) actually reduced the quality of the product by removing features (pillows, blankets, food, drinks, seat size, seat selection, changeability, eligibility for upgrades, etc).
Premium Economy in most cases is just charging customers for what they used to get in Economy.
I agree with everything in your comment save for a small quip about terminology.
When you wrote "as some failing of capitalism", I believe the economic concept of "market forces" would have conveyed the same message better, compared to the larger concept of capitalism, which is essentially a political ideology that can trigger disagreement from people who have benefited from competing political ideologies like socialism.
Essentially, what I'm getting at is that a race to the bottom can happen as long as there are market forces at play, even if the society itself is not running a pure capitalist system like China (which IMHO is a cross between capitalism + communism vs. capitalism + democracy).
For instance, Uber China was forced to quit in 2016. They sold to rival Didi Chuxing because they couldn't keep up with the race to the bottom by them.
I keep having to make this point to both my liberal and conservative friends, but ... just because microecon 101 (or macroecon 101 in some cases) is conserved doesn’t mean it’s an optimal solution. If your high fixed cost infrastructure suddenly becomes critical for society to function perhaps it’s time for a much different conversation.
I'm curious to hear more about the airline race to the bottom you're talking about. I've been flying once or twice a year for the last 7 years or so, and it's all pretty much been the same except perhaps a lot more addons and bagging fees.
Yeah, and ticket prices were 20 to 50% higher. Consumers had options and choose the lower price.
I remember not long ago when flying was a serious financial commitment. Flying economy from LA to NYC might set you back $600 in 2000 dollars ($900 today). Now you can find a ton of flights for under $400.
Air travel has become so cheap you can pretty much subsidize 3-4 domestic trips a year with a good rewards credit card and flexible dates. I am not sure this is a net win for my personal happiness as I rarely take these trips for fun reasons.
Air travel has certainly become cheaper than it was in the past, but there are two sides to this - that credit card rewards are relatively high is largely a function of high credit card fees.
Right - the rewards system is essentially a wealth transfer to those who have access to credit with the rewards acting as a refund of the bulk of the fees.
Yes. But much longer ago than 7 years. Seats have been getting closer together both in terms of less leg room and reduced seat width. Food has been all but eliminated from economy.
To see the continued slide take a look at basic economy and carriers like Spirit (to which basic economy is a response to). No assigned seats, no carry on bags, no drinks on the plane. They’d offer standing room only and charge for the restroom if they could get away with it.
Right. But they have no problem filling those planes. Even when consumers have the option of flying a marginally better economy flight for $50 more, they reject it.
The only problem with the “race to the bottom” with airlines is the lack of tools to allow easy comparison of like with like, which in turn means airlines don’t (yet) have many different sized seats and service levels on a plane.
One day we’ll see flight aggregators that allow you to specify how much luggage you have, how tall you are, what kind of seat you want, if you want a decent meal, etc, and will give you a unified seat price.
In Europe, trains are somewhat closer to this and are in every way superior in my relatively limited experience.
The difference when you go something like Paris > London is night and day compared to the horror that is flying.
There is the argument that they provide the app distribution, and the store, and all that, yes. But that's included in the paid developer subscription: free apps get all that and their devs pay nothing more.
I cited IAPs specifically because Apple is indeed only providing the payment system, there. There's no download or anything else (already paid for, via the developer program anyway).
I think this deal was more about Visa seeing a not so distant future where the payment rails shift to an API based interaction, not the data that Plaid has. Visa already probably has more data than they know what to do with.
"Plaid has become the leading financial data aggregation company in the United States. Plaid is planning to leverage its connections to build a bank-linked payments network that would compete with Visa. Plaid’s money movement platform would allow consumers to pay merchants directly from their bank accounts using bank credentials rather than a debit card. Plaid’s established connections and technology uniquely positions it to enter the payments market and disrupt Visa’s monopoly"
Fascinating. I think the line that DOJ is drawing is tenuous. It is not like removing Plaid from the marketplace would remove dangers to Visa's debit card monopoly. Wouldn't a Google/Apple/FB/Amazon be more of a platform threat. Google/Paypal already do this when you can directly pay from bank account to merchant. How does this help?
Apple and Google wallet are integrated into the credit card processing infrastructure. So they don't compete with Visa, their payments still go over Visa's rails.
Plaid's killer feature has always been their private access to APIs that the banks won't give to anyone else. It's essentially like they're using modern web APIs while everyone else is using snail mail (i.e. ACH, bank transfers that settle in batches once per day). I'm not exactly sure how they struck those deals and why there is no reasonable, open integration path or payments protocols between banks in the US like there is in every other developed country. Is it just that the banks like making their $15 per wire transfer? It feels like there's got to be more to it but I'm not sure.
But regardless, where we've ended up is the banks have fought so well to keep everybody out of their collective walled garden, but somehow Plaid has snuck in under the radar and has become so large and entrenched that they are themselves being called the monopolist, rather than the banks that own and control the system but of which there are multiple. I don't know enough about the details of Plaid's business though to weigh in on whether there's any truth to these claims.
When I link a Capital One account, I get an OAuth-style flow and the ability to select which accounts I share directly on the C1 website. The sites I use this on show up as "Linked Apps" in my security settings in C1.
CapOne’s API snd docs, technical customer support and their easy to use VCC generation has kept me with them long after I had expected. Other than Amex they’re probably the only big “bank” I’d recommend (and Fidelity for checking).
Where they aren’t using APIs and instead the scrapers, does that mean they have your banking login credentials? Be curious to hear how they get around MFA.
My experience using plaid with Schwab, on which I have MFA, is that you need to add an MFA code to your password when connecting the two. It works for some duration (a few days?) and then loses sync and you have to re-enter the password+MFA combo.
Nah, Plaid's UI handles it natively. If it's required, Plaid will prompt you during the connection process with the same steps and any questions you'd encounter doing it directly on Schwab's website - "do you want a text or call" and then "enter the code" steps.
Yes, they also can monitor and scan your financial transactions. Accepting their T&C and Privacy Policy gives them too much power, consumers are freely giving away access to their financial information for convenience.
When i used Mint at first, they'd just ask you to go to the page with the caphcha or whatever and go through it when you'd update your accounts with the auth scraper method. This was like maybe a decade ago? You could do a similar thing with mfa in realtime.
So why not force the opening of the walled garden in law then? The EU has PSD2 now which forces all banks to have open APIs. We have multiple Plaid-like competitors providing the platform on top of those APIs. But it wouldn't have happened without regulation.
Generally innovating through regulation is bad and I don't support it. But I think the aversion to it in the US is what creates these monopolies in the first place and in this specific use case, I think it's a faster way to solve the problem.
This is an example of what becomes possible (no card details and low fees):
>Plaid's killer feature has always been their private access to APIs that the banks won't give to anyone else.
These private apis will soon no longer be private due to Open Banking/PSD2 (europe) regulations. Plaid's biggest competitive advantage was removing the complexity of various data formats and APIs of banks. This variance will soon be gone in the coming years.
Paypal has my banking details and can use those or credit/debit card to complete my payments. They always prefer to use bank because of no fees with cc/debit as backup. Google could do the same. ACH is really creaky and old.
We need something like UPI (india) or Wechat (china) in the US. Zelle is a poor substitute.
Paypal is basically acting as a short-term lender in this case, which comes with all its own risks and costs. Sure Google could do the same but it's not worth it to them to get into this mess.
Paypal uses ACH under the hood (it's one of only two options, the other being wire transfers which are expensive and often even need to have humans in the loop). So they guarantee the payment to the seller, and then as the buyer your bank account gets charged up to a day later when the ACH batch processing goes through. If you don't have enough money in your bank when that happens, it gets rejected and Paypal takes on that loss unless they can recover it from you via collections system.
To limit their risk, Paypal even uses Plaid in some cases to check your bank account balance before deciding whether to allow your payment to go through! But even that isn't a guarantee, because you could always have made multiple ACH payments that day of which some might go through and some could fail due to lack of funds. It's like trying to prevent a race condition in a multithreaded program by just checking the value again closer to where the race occurs, it might make the issue happen a little bit less often but to actually solve the problem you need certain atomic primitives which the US bank transfer system completely lacks.
> Paypal has my banking details and can use those or credit/debit card to complete my payments. They always prefer to use bank because of no fees with cc/debit as backup. Google could do the same. ACH is really creaky and old.
> We need something like UPI (india) or Wechat (china) in the US. Zelle is a poor substitute.
Why is zelle a poor substitute? I can pay people via phone number.
Zelle is owned by a private company, owned by the US' largest banks [1]. The US Federal Reserve is working on a replacement [2] (FedNow) that presumably will have less power to keep banking entities (small banks, community banks) in the US with less pull off the network (with pricing or other mechanisms).
From the perspective that instant payments should be an inexpensive, accessible utility for the benefit of all citizens, the Fed's FedNow efforts are preferable to Zelle or legacy ACH services.
I understand how Zelle pull off real-time for intrabank. For interbank, they are either covering it or have they built a payment service under the covers?
Technically, Plaid doesn't have access in a sanctioned way. You pretty much guaranteed violate any electronic banking ToS by sharing credentials with a third party.
Only if Plaid weren't a company that has contracts in place with every single bank they offer to access their services without being sued (despite the fact that the antique tech stacks these banks have don't allow Plaid to use oauth in most cases).
> The complaint alleges that Visa’s CEO viewed the acquisition as an “insurance policy” to protect against a “threat to our important US debit business.”
This quote makes it sound like Visa is acting monopolistic, which is the behavior they don't want to see.
Rest of the paragraph
> This acquisition is the second-largest in Visa’s history, with an extraordinary price tag of $5.3 billion. Visa’s CEO justified the deal to Visa’s Board of Directors as a “strategic, not financial” move, and noted that in part because “our US debit business i[s] critical and we must always do what it takes to protect this business.” Unless acquired, Visa feared that Plaid “on their own or owned by a competitor [was] going to create some threat” with a “potential downside risk of $300-500M in our US debit business” by 2024. If Plaid remained free to develop its competing payment platform, then “Visa may be forced to accept lower margins or not have a competitive offering.”
It's unclear where these statements come from, but I find it hard to imagine they were meant to be public, the CEO would know better. Most likely they were internal conversations that got leaked or conversations that got logged which were part of some sort of warrant/information request.
Or you're right and CEOs of huge multi-international companies are a lot more stupid than we previously thought.
The underlying argument is that they would probably just do it again with another competitor down the line, I believe. At its heart is anti-competitive behavior.
Plaid is literally the only way to do ACH without microdeposit verification. There is no reason Plaid should have a monopoly on this. If banks opened up APIs for bank account verification, then anyone could compete with Plaid.
As usual the Justice Department doesn't know what they're talking about.
This is a really bad take. Plaid is a 'monopoly' just as much as Stripe is. There is nothing stopping a company from doing the hard work of integrating thousands of banks using a single API. Furthermore, the fees Plaid charges are literally pennies, companies like Transferwise use them to do most of the bank transfers and yet still manage to offer the lowest rates for cross border payments.
One final point: the future relevance of 'bank integration as an API' companies, such as plaid, is really murky. With the advent of Open Banking regulations, real time national payment systems etc the difficulty of integrating various banks using a single API will be drastically reduced.
> Plaid is literally the only way to do ACH without microdeposit verification.
The only way to do that in what context? When I had a very tiny freelance IT consulting side business in 2011 (and maybe some of 2010), TD Bank was happy to sell me ACH origination access as part of my business account.
Yeah they charged me $10 per batch, so not great for a micro use case, but more tolerable when there are a bunch of higher-price-tag transactions per batch. They didn't require me to do any verification of the other account - they couldn't since the other account didn't have to be mine. I just had to agree to follow NACHA rules and I could put in any account number and routing number I wanted. It's amazing how much access a random individual is easily granted to pull and push money... (Obviously I didn't abuse it, and the blowback following a complaint would have been severe if I had.)
Saying Plaid were more of a monopoly than Visa is (and Visa is a pretty bad monopoly), isn't that an even bigger reason for the justice department to move to prevent this acquisition?
Consolidation is bad, and big megacorps effectively break the market dynamic that fosters healthy competition, innovation, and reduces the cost of goods/services. I am happy to see acquisitions by megacorps blocked in general. But really we need a revision of antitrust law for the modern era, and we need it to be enforced.
I'm being vague, but I think my concern is that the focus on "monopolistic behavior" is archaic. Harm to a healthily competitive environment can result from a few big players existing rather than a single dominant one. It may not even require certain "behavior" as much as a large entity with lots of capital simply existing. There are also big barriers to entry in any business that is built on network effects - even there, we need a mechanism to enable competition.
>I'm being vague, but I think my concern is that the focus on "monopolistic behavior" is archaic.
I take your point. However, at least in the United States[0], the law does not require an entity to be a monopoly to engage in behavior that is anticompetitive and/or violates anti-trust laws.
In fact, the topic at hand (Visa's proposed acquisition of Plaid) doesn't have a "monopoly" component at all.
Rather, IIUC the DOJ is arguing that it runs afoul of section 7 of the Clayton Antitrust Act[1] which addresses mergers and acquisitions that limit competition.
I don't disagree with your assessment of the situation, but I do think that existing law (and jurisprudence expanding on that law) address the vast majority of the issues impact competition today.
This press release is a month old - I didn't notice any new information released. See related article and discussion from early November here: https://news.ycombinator.com/item?id=24999975
Browsing forwards, I looked upon mentioned Sherman and Clayton acts. Clayton act seems to be specifically about mergers.
It looks to me that Sherman act might not be applied to app stores because it excludes 'historic accident and growth' - but could it be up to discussion, because Apple and Google have changed rules after getting dominant position? Specifically preventing external payment mechanisms.
By the way, you can see Plaid's docs about money transfer here: https://plaid.com/docs/bank-transfers/ - don't think it's operational / available to the public yet tho
But definitely, if Plaid can create their own rails (using the bank accounts' ACH/Wire systems), it would definitely be competitive to Visa in certain situations. You can let your mind fly, and it would take some time to proliferate. But many online merchants already allow ACH-payments. This would make it even easier.
I don't see how any activity here helps an alternative to cash for payments. I'm not even fussed about anonymity here: visa/mastercard seem to provide a nationalizable service at an extremely poor quality and cost. We really deserve much better as both payers and payees.
Also, even with signatures you still need some way to reverse errant and malicious charges. Cryptography isn’t a panacea for solving all real world problems.
Yes, modern cards are basically YubiKeys. You can't trust people (such as bank employees) to maintain private keys. That would never work.
Maybe some kind of USB/Bluetooth device that can authorize your physical debit card can let online merchants debit bank accounts securely. I know they have had something similar in the UK for decades.
Government's argument rests on the fact that Visa shouldn't acquire Plaid because of the potential technology they might create. This is a really dangerous argument.
This is a direct quote from the plaintiff's argument:
"While Plaid’s existing technology does not compete directly with Visa today, Plaid is planning to leverage that technology, combined with its existing relationships with banks and consumers, to facilitate transactions between consumers and merchants in competition with Visa. Like Visa’s online debit services, Plaid’s new debit service would enable consumers to pay for goods and services online with money debited from their bank accounts."
I'm not a lawyer nor an expert in payments but this seems like a stretch to me.
What is “dangerous” about it? It isn’t as if the DOJ is the one speculating as to what the motive is or was, it’s that they have specific evidence of communication between Plaid and Visa that spelled out Plaid’s plan to basically “scare” Visa and Visa’s concern of their plan.
This feels like one of those situations where two parties were so conspicuous is making an anti-trust case that the DOJ could not do anything but prosecute.
I believe the word 'dangerous' has developed a new meaning; roughly "this doesn't align with my personal politics." Whatever my politics happen to be are assumed by me to be best for society, and consequently anything that doesn't go my way threatens to harm society. For instance, if I were a libertarian I might think that attempts to regulate corporations would create inefficiencies that would harm society by harming the economy. Or if I were a social democrat, I might think that failure to regulate corporations will harm society by letting corporations run rampant on people. In either case, very sure of my own beliefs, it seems self evident to me that those who disagree with me present a danger to society.
That is, unless, I have the humility to earnestly be cognizant of the possibility that I could be wrong about what I believe. If I have that humility, I might choose to temper my criticism of others.
The problem is that the Visa CEO allegedly believed the potential technology was coming soon, and allegedly told the Board of Directors to acquire Plaid so Visa wouldn't have to compete with its new technology. If the Justice Department were just randomly speculating, that'd be a different story.
- Plaid is hardly alone in its competitive space. Even if Finicity sucks and SynapseFi is mid-implosion, they don't have a corner on capabilities like this indefinitely. MX is pretty alright.
- That ignores FANG platforms that could implement similar money-moving features.
- Stripe trotted out their "Banking as a Service" APIs today.
- Let's not forget the Chinese giants that have obviated the day-to-day need for credit card networks in their country, whose strategists (and imitators) are eyeing global markets.
If Visa's approach to this competitive threat is really acquire-and-kill, I hate to break it to them but... not even they can afford it. With all the innovation and competition in the space, best case scenario is that they bought themselves a year. And it turns out that, oops, Plaid wasn't even the closest. Stripe was.
The case for monopolistic harm is slim. Even if there was monopolistic intent, it was probably incompetent.
Plaid is still (for some unknown reason) the only company that is able to do real time ACH transactions that bypass credit card companies in the US. All other companies still require long verification processes or high transaction fees.
Plaid doesn’t do ACH transactions, someone else does, e.g. Stripe, or Dwolla. They merely provide a means to verify account details instantly per NACHA rules.
Plaid is planning to do ACH payments themselves and have a private beta.
They basically guarantee the funds to the merchant and reduce the likelihood that the cash won’t be there. The other side of the coin is providing insurance against fraudulent charges. This only really matters where physical goods are exchanged.
Can you share a link of the new service by the Fed? I wanted to show it to somebody, but I don't know what it's called so it doesn't turn up on Google.
My understanding is that Plaid would/could charge significantly less (up to 50% less) than Visa currently does.
And that's the value of competition. Not necessarily as a race to the bottom (as we've seen in the airline industry, but that's another topic), but in providing Visa's customers with viable, more cost-effective alternatives.
And that's been a problem (at least in the US) for a long time. Big corporations buying up potential competitors in order to maintain both their market share and their overpriced offerings.