Visa has laid down the marker for an institutional data network with its acquisition of Plaid. A lot still needs to happen for this to materialize, but it is no longer possible for US banks to assume that open banking will not arrive at their shores. They need to move fast to seize early-mover advantage and use this as a trigger to fundamentally change how they operate. The authors of the BCG White Paper are Inderpreet Batra, who is a Managing Director & Partner in the New York City office of Boston Consulting Group. Steve Mallouk is a Managing Director & Partner with BCG Digital Ventures, in the firm’s Seattle office and Sushil Malhotra, Managing Director & Partner in the firm’s New York City office.

1. Working Paper
Dawn of the Data Network
Inderpreet Batra, Steve Mallouk, Sushil Malhotra
January 2020

2. Working Paper 1
BOSTON CONSULTING GROUP January 2020
isa's acquisition of Plaid heralds a new frontier in the consumer-permissioned data
space. The announcement sets up the institutionalization of data sharing in the US and
the potential to extend globally, like with its payments network. It forebodes the
creation of a formal 'data network' with a clear set of rules, permissions and obligations of data
furnishers and data users. Which in turn should lead to a substantial increase in the number of
use cases that rely on consumer-permissioned data, and make banking and payments far more
competitive than it currently is. Open Banking has officially arrived to the US.
Or has it? Plaid's current model is not particularly friendly to banks, particularly if they're not
connected via an API. Screen-scraping is not secure as it exposes login credentials outside the
banking environment and creates a drain on the bank's technology resources. Most US banks are
not ready for a world where money and relationships can move around at the drop of a hat, based
on who's delivering the best value to the customer - customer inertia is still the biggest driver of
value for many of them. Visa will have to change both how Plaid operates and the current bank
mindset - the former clearly being far easier than the latter.
Regardless, this deal does set up the potential for game-changer moves in the banking and
payments ecosystem. Banks can no longer ignore the threat of open banking and need to up their
game on both defending themselves and realizing the associated opportunities. Core banking
providers and payments processors need to enable multiple new use cases and potentially create
new ones themselves.
This deal also kicks off the race to be the second data network, one that will arguably be more
bank-centric than Plaid is. It represents an opportunity for players like Mastercard and core
banking providers like FIS and Fiserv to step in and create a differentiated offering, potentially in
partnership with banks. Watch this space.
What is Plaid?
Plaid is a financial data network that allows customers to connect their bank and other financial
accounts to apps they use for various purposes, e.g. paying friends and family (Venmo),
transferring money to a robo-advisory account (Betterment), and so on. Say I'm a mortgage
V

3. Working Paper 2
BOSTON CONSULTING GROUP January 2020
lender and I need to verify my borrower's income, I could ask them to give me data from their
primary checking account so I can observe their paycheck amount. Plaid helps me connect to
11,000+ banks so I can get this data from any borrower, as long as they're comfortable logging
into their online banking account via my interface1
. More than 2,600 developers use Plaid, which
is linked to more than 200 million consumer accounts, having grown at 115% over the last 4
years2
.
This service is not particularly new, as players like Mint have used screen-scraping to provide
web-based personal financial management services for almost 15 years. Other players in this
space include Yodlee (owned by Envestnet), MX and Finicity (both privately-held).
What does it mean for Visa?
Visa's stated rationale for acquiring Plaid is to get closer to FinTech developers who are building
fast-growing, next-generation banks, and to accelerate its network-of-networks money
movement strategy. Neobanks like N26 and Monzo in Europe and Chime in the US have been
growing very rapidly, and Visa has been competing aggressively with Mastercard on being their
payments network. Owning Plaid now allows it to create a richer bundled offering and become
more of a one-stop-shop to developers, potentially integrating security and authentication as
well. It also gives Visa visibility into high-growth FinTechs before they hit everyone else's radar
screen.
Money movement is a more interesting use case. For example, today Venmo uses Plaid to verify
bank account information and ensure the customer has a sufficient balance, but not for money
movement which can happen in multiple ways, including ACH transfers and via card rails. With
Visa's ownership of Plaid, it now has visibility to transactions that run on non-Visa rails3
. This
1
Many banks like JP Morgan Chase and Bank of America now publish APIs so Plaid does
not see or retain the login information; in other cases it does, particularly where Plaid is
screen-scraping the account for the required information.
2
Source: Visa investor materials on Plaid acquisition, January 13, 2020
3
This is likely an oversimplification and requires a more in-depth assessment of data flows
and data usage policies than in the scope of this article. The simplistic view is that Plaid

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BOSTON CONSULTING GROUP January 2020
will give it useful insights on how non-Visa payments methods are being used. Visa could also
try and displace the rails being used, e.g. Visa Direct instead of ACH.
Our view is that this deal heralds the arrival of a 'data network', with Visa setting standards for
how data can be shared between different parties. Like with its payments network, expect rules
around obligations of data seekers and data furnishers, continued standardization and
enhancement of the data stream, and combination of data streams across multiple furnishers. It
could also build use cases on top of the network, e.g. income verification, which will involve
defining the data fields to be scraped and an algorithm to estimate income based on incoming
cash flows over a period of time. Another example is authentication, where Visa can define a
'strong authentication' standard based on bank account information, thereby taking steps towards
the creation of a digital identity. The key challenge though is going to be to convince banks to
play along and participate in a user consent-based data sharing ecosystem.
The macro theme here for Visa is to get access to another type of 'transaction' ecosystem that it
can set standards for and monetize. Plaid is an early-stage data network with a limited
geographic footprint and significant use-case expansion potential, particularly as open banking
becomes widespread globally. Visa does increase its exposure to the broader banking ecosystem,
but also gets connected to non-banking ecosystems with use for bank data, e.g. bank account-
based authentication.
The wild-card and open question here pertains to the type of access Visa has to the data that's
collected by Plaid. Data rights in the US are still governed by the maxim 'possession is nine-
tenths of the law', and Plaid's end user privacy policy gives it wide latitude on what can be done
with the data. It is reasonably safe to assume that post-close, Visa has access to a vast trove of
complementary payments data including bank account information and associated transactions.
There are many uses for such data - for example, could Visa create a bank-to-bank payments
has access to all transactions happening in the bank account it is connected to, given it is
scraping that information frequently.

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BOSTON CONSULTING GROUP January 2020
network (a la Zelle) based on the bank account directory information, and enable widespread
access?
What does it mean for banks?
It is widely acknowledged that the new basis of competition in banking - particularly consumer
banking - is personalized insights and experiences. Banks have been investing heavily in these
capabilities but still have some ways to go to catch up with FinTechs, who are arguably solving
narrower problems (e.g. online trading). Given that customer data is the foundation for these
capabilities, the natural question for banks raised by this deal is what they should do as it relates
to data sharing. Should they allow their customers to share their data with any provider? If so,
should they publish an API for data access?
Our view is that this deal accelerates the US moving towards an Open Banking construct and
will force banks to move towards a consent-based data sharing world. Banks will likely try and
use their leverage with Visa to slow things down, to at least give themselves more time to get
ready. We would argue that they should instead identify and build use cases that let them take
advantage of access to both in-house and off-us customer data, e.g. for a credit card-only
customer, use data on off-us deposit balances to make a rate or fee-based offer to acquire that
relationship. There is significant first-mover advantage if we end up in an Open Banking world
and even if not, these are useful tactics to acquire new customers and retain existing ones.
A potential approach to stepping into an open banking world would be to select a few such use
cases and open up core functionality to third-party players. This will allow banks to test the
waters while maintaining control, and help build out a partner ecosystem in a methodical
manner. They can also test pricing constructs which allow them to charge third parties by the
amount of data they download, the number of API calls their components make to a bank's
systems, and so on.
What does it mean for everyone else?
This deal also accentuates opportunities for core banking providers like FIS and Fiserv, who
already have deep relationships with Visa. They could be part of the ecosystem that a bank wants

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BOSTON CONSULTING GROUP January 2020
to build, and could also build standalone applications that support the deployment of new use
cases at banks. Given their ownership of acquiring businesses, they could play a similar role with
merchants, e.g. build an application layer to allow SMBs and mid-size merchants to get funding
for their business, or POS loans for their customers, from their banks.
Finally, someone needs to create a second data network, arguably one which is more bank-
centric and has higher likelihood of their participation. A natural play would be for banks to
drive the effort, in partnership with players like Mastercard, FIS and Fiserv. The latter two bring
connectivity and access to the data, which will allow the effort to quickly scale. This will be an
interesting space to track over the next few months.
* * *
Visa has laid down the marker for an institutional data network with its acquisition of Plaid. A
lot still needs to happen for this to materialize, but it is no longer possible for US banks to
assume that open banking will not arrive at their shores. They need to move fast to seize early-
mover advantage and use this as a trigger to fundamentally change how they operate.
Inderpreet Batra
Steve Mallouk
Sushil Malhotra
Inderpreet Batra is a Managing Director & Partner in the New York City office of The Boston
Consulting Group. Steve Mallouk is a Managing Director & Partner with BCG Digital Ventures,
in the firm’s Seattle office. Sushil Malhotra is a Managing Director & Partner in the firm’s New
York City office.

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BOSTON CONSULTING GROUP January 2020
You may contact the authors by e-mail at:
Batra.Inderpreet@bcg.com
Steve.Mallouk@bcgdv.com
Malhotra.Sushil@bcg.com