With Retail’s Big Show in New York, earnings season kicking off and banks reporting on the State of the State 2019, there was no shortage of headlines this week. Yet, even in a big week, there are standouts — Visa bought Plaid, Goldman Sachs’ Marcus hit $60 billion in deposits and 75 percent of small- to medium-sized businesses (SMBs) said that slow settlements create cash-flow crises for them.
This week, Ingo Money CEO Drew Edwards joined Karen Webster to discuss these topics, what it all means and what to look out for in the weeks ahead.
Visa’s $5.3 Billion Plaid Purchase
In a move that caught most market watchers by surprise this week, Visa announced that it will buy Plaid for $5.3 billion. Plaid creates application programming interfaces (APIs) that make it easier for consumers to share their data, including bank account credentials, with third parties via a single digital touchpoint.
“Plaid opens up new market opportunities by significantly expanding Visa’s network capabilities,” Visa CEO Al Kelly told investors on a conference call after the deal was announced, adding that Plaid provides “a terrific platform for extending” Visa’s integrated payment solutions and value-added services.
In terms of mechanics, the acquisition — which involves a cash payment of $4.9 billion, with the remainder tied to deferred equity and retention equity — is slated to close within three to six months, assuming regulatory approval.
The move makes a lot of sense, Edwards told Webster, as much as it caught everyone off guard. Plaid’s API provides a powerful and popular tool by which third-party service providers can gain easy access to a consumer's bank account — which has all kinds of applicable potential for the card network.
“[Ingo Money uses] Plaid for account ownership authorizations, which was [its] core offer,” Edwards explained. “But you could [do] the long-term plan to get hundreds of millions [of] consumers to validate who they are, and — by the way — get a peek into their account[s] so you can see the balances, transactions and various things. That could really grease the skids on money movement and all kinds of things.”
We’re incredibly excited to share that Plaid is joining @Visa!
Together, we’re looking forward to expanding our products for developers and connecting consumers with the fintech services that are making money easier for everyone. More details here.https://t.co/2DfsHVJ3JX
— Plaid (@Plaid) January 13, 2020
The acquisition by Visa, Edwards noted, indicates how much scale Plaid has actually built since it expanded from that core offering. As of the acquisition announcement, Plaid reportedly connects to more than 11,000 banks and financial services companies, as well as more than 2,600 FinTech firms, and touches more than 200 million accounts globally.
While it is undeniably a big day for Plaid, Edwards told Webster, the bigger issue at play here is the card networks and the degree to which they’ve “spread their wings” when it comes to how they view their place and offerings in the global commerce ecosystem.
“I think, if you look at what Visa and Mastercard have been doing in the last three years, they are really moving beyond cards and traditional merchant transactions. The potential for the Visa-Plaid deal is really how Visa can build on all that existing scale to create one network with a single set of standards, and then build an ecosystem around it,” he said.
The contours of that ecosystem have yet to be fully defined, as the deal is still taking place. Yet, the hope is that it will continue to advance efforts to enable a feature that he thinks should already exist: a seamless ability for consumers to move their money around, no matter where it originates or ends up.
Goldman Sachs’ Big Marcus Milestones
This week, Goldman Sachs had two big milestones to announce out of its consumer-facing banking branch Marcus. The first was that Marcus finally has a mobile app to call its own, a mere three years after launching. Company spokeswoman Kristen Greco noted that one of the most frequent customer requests has been for an app integrated with the rest of the bank. She added that software designers and developers “spent the better part of 2019” creating the Marcus app.
The delay is somewhat inexplicable, Edwards noted, given how smooth and well done the consumer experience is (Edwards is a Marcus customer himself), and the popularity of mobile banking.
The bigger, more attention-grabbing news this week came out of Goldman Sachs’ earnings, with Marcus reaching $60 billion in consumer deposits as of the start of 2020. The same earnings call also informed investors that consumer and wealth management net revenues — the segment that houses Marcus and the Apple Card, launched in tandem with tech giant Apple — totaled $1.4 billion, up 8 percent year on year, and up 7 percent sequentially.
“What I’m fond of saying is that Goldman Sachs is the biggest challenger bank in the world, and I think places like the deposit side have done a great job with the consumer experience and created a very competitive offering,” Edwards said.
On the lending side, things are more complicated. The Apple Card is popular, and the experience is well-liked, but Goldman Sachs now finds itself the owner of $2 billion in credit card receivables outstanding. That experience is a fairly exotic one in the world of lending, he explained, and it is the type of business in which only giant players ever survive.
Goldman Sachs is a massive force in financial services and has made an admirable early entry to the market. However, he noted, it is still very new to retail banking — and the learning curve can get steep and fast.
“I’ll bank on Goldman Sachs, but I bet they find they have a lot of learning about receivables coming to them when we eventually get to an economic downturn,” he said.
Speaking of receivables, the last news item of the week came out of the world of SMBs — where receivables aren’t coming in quickly enough.
SMBs’ Need For Receivables Speed
According to new data released by PYMNTS this week, getting paid slowly isn’t a problem for small businesses — it is actually a catastrophe. Among small businesses surveyed, 75 percent reported that not having access to the rapid settlement of funds is creating cash-flow crises, such as not being able to pay a vendor or, in particularly dire cases, not being able to make payroll. More than 50 percent of SMBs reported that if their current payment processing arrangement doesn’t enable rapid settlements, they would consider switching to one that did.
It’s a situation that Edwards said he can relate with from the early years at Ingo Money, and the phone calls to clients to remind them that if they didn’t pay their invoices, he wouldn’t be able to pay his workers.
There is clearly a hunger for instant payments for small merchants, which is why Square recently raised the price on its service. The problem, he noted, is with availability — Square has instant payments, but not every SMB works with them.
“What we have seen is that the more traditional an acquirer is, the less prepared they are in terms of their legacy systems, [and] in terms of actually making real-time disbursement available for small businesses,” Edwards said.
Yet, he noted, the clock is ticking. According to the PYMNTS study, more than two-thirds of entrepreneurs know that instant payments are an option, and 97 percent bring in less than $10 million a year — which means their cash-flow issues are often critical, and they know there is a better way to solve them.
“There is a lot of work to do out there in the merchant service industry to make sure this is something that every SMB can have, or they will watch SMBs exit to the service providers that have it,” he said.
Who can get on the stick, and get their legacy systems into gear to make those offerings? That, of course, remains to be seen. As does Visa’s new Plaid look, and how exactly Goldman Sachs will continue to evolve as a consumer bank.
However, whatever happens, and however it all turns out, PYMNTS will be here at the end of every week to keep all updated on what happens, and how leading players in the industry are thinking about those moves.