It used to be that credit and debit card companies connected the four-parties involved in branded network payments through non-profit associations. These non-profits facilitated interbank clearance so that a card payment drawn from bank “X” could clear against a merchant account serviced by bank “Y.” The model was similar to a check clearing network, designed by bankers, for bankers.
The entire process changed when the two major brands became publicly traded entities, first Mastercard in May 2006, then Visa in March 2008. Today, Visa self describes its mission in broader terms: “A network that connects the world – Visa connects people every day through innovative payment solutions.” Mastercard’s mission is equally ambitious: “We reshape the digital economy so everyone — individuals, financial institutions, governments, and businesses — can realize their ambitions.”
Today’s Mastercard announcement about its latest acquisition is of no surprise. It does not aim at the switches that drive the global business, but rather at supporting technologies that validate and speed up decisioning, two critical card requirements. Bloomberg reports:
- Mastercard Inc. made another push away from traditional card payments with an $825 million deal to acquire technology firm Finicity.
- The purchase gives Mastercard more tools that help banks speed up credit decisions or improve account verification processes, using Finicity technology that lets companies share consumers’ financial data.
- Finicity has a proven business, built on partnerships with thousands of banks and fintechs, similar to us,” Mastercard President Michael Miebach said in a statement Tuesday. “Finicity also shares our commitment to consumer-centric data practices, ensuring consumers have a say in how and where their information should be used.”
- Mastercard’s efforts to diversify away from traditional card payments include its biggest-ever acquisition, the $3.2 billion purchase last year of a platform owned by Nets that moved the company deeper into so-called account-to-account payments.
As would be expected in this highly competitive field, Visa is still settling in on data aggregator Plaid.
- Visa Inc. is diversifying as well, announcing a $5.3 billion deal earlier this year for Plaid, a fintech that connects popular apps like Venmo to customers’ data.
- Both Finicity and Plaid are so-called data aggregators. Financial behemoths and startups alike pay them to use the pipes they’ve built to access consumer-banking data.
- It’s an industry that’s at times drawn ire from banks, which claim consumers might not understand how much data they’re exposing when they sign up for outside apps and services. In response, Finicity joined a group of several lenders to form the Financial Data Exchange, a non-profit that’s sought to create uniform standards for sharing consumer’s banking data.
- “They’re driving the dialogue around data-management principles across the industry,” Miebach said in an interview. “The two founders helped set up the Financial Data Exchange standards years ago, and it’s now a leading standard for data exchange.”
There are a few critical observations regarding recent acquisitions by Mastercard and Visa. The two firms stay away from balance sheet risk and leave that to their franchise clients. There are similar thrusts towards cardholder and merchant validation, and though the promise of “big data” is still out there as a beacon, it has yet to be realized as a business driver.
But for now, what were once sleepy, non-profit associations are in the big leagues and producing strong investor returns, no matter how the economy reacts to COVID-19.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group