Jud Linville has decades of experience in financial services and payments, heading up Citi Cards and American Express’ consumer services.
He’s now a senior advisor at investment firm General Atlantic. He joins us to discuss the threats and opportunities within financial services and how fintech and Big Tech are competitively positioned to take marketshare.
An incumbent’s perspective
While I was running a few of the large platforms, I was always intrigued by what we could do to disrupt the current platforms’ heavy, clunky tech stack. I spent every four to six weeks heading out to Citi Ventures or to the West Coast or to Asia to look at trends I thought would be important and accretive to our customers and how we went to market.
Payments, credit cards and new competition
Having spent several decades in cards and payments, I have seen multiple significant threats to how the issuing business operated and how different models like co-brand operated. But I do believe that the three or four party system is an incredibly powerful network. Being able to bring buyers and suppliers together, removing friction in any commerce interaction — what the networks and issuers have done by presenting a piece of plastic or any form factor in a few milliseconds around the world is a pretty remarkable feat. That birthright, that network that’s been built with tremendous amounts of liquidity is tremendously valuable.
Threats to cards
I think the threats are always going to be around cost of card acceptance. It’s been a hot topic for the past couple of decades. The second piece is that there are a bunch of clunky elements of how you transfer money. If you think of some types of cross border payments that aren’t supported by cards, they’re incredibly high cost. The third threat is where a lot of the profit engine is generated: episodic lending. I think there are a number of players who have been very adept at building an intuitive, simple point of sale lending capability. I think that’s a natural threat to cards. The last threat is big tech with its pervasive operating system — all you have to do is look to China to see how an operating platform can compete in payments. It can be an immersive ecosystem like Apple has or Amazon or Google — there’s a reason all of them are looking to get into payments.
The industry response
On the issuing side, that’s where the direct connection to the consumer happens, not on the card networks. The issuers bring liquidity and throughput to the networks. They pay for acquisition, the rewards and underwrite the loans. While fintech has entered with intuitive UI, some of the payment companies are left with third party tech stacks that aren’t very nimble. The incumbents are embracing fintechs and are also looking at how they can reverse engineer some of their products themselves or white label or buy them.
The networks really weren’t acquisitive in the past. Over the past couple of years, they’ve done a much better job thinking about how to move closer to real time payments and make acquisitions like Vocalink and a bunch of others. They are thinking about how they use the payment network to make disbursements and send other information back and forth to gig economy workers or around the globe.
Card networks and data aggregation
Let’s take Plaid, for example. Visa has been a great enabler of enterprise FIs as well as smaller credit unions and banks around the world. The one thing they were missing was connectivity to fintechs. If you look at the data aggregation layer Plaid built, it was a massive improvement over the Yodlees out there that were screen scraping. For Visa to do a deal with Plaid brings them right into that universe as a first-party of immense and important data.
If you think about it, Visa and Mastercard and the other networks are really a brand, a switch and an immense amount of data aggregation. I used to refer to it as a massive transaction processing machine with an immense amount of data exhaust. It’s an incredibly powerful engine and Plaid just accelerates that.
On the other side, I think Plaid was facing some serious challenges from banks who weren’t wild about their environment and how it operated within banks. They were beginning to push back — a couple did so publicly. With Visa, as a center of governance across payments, Plaid benefits as well.
I love working with purposeful, mission-driven founders who have a big idea and are trying to tackle it with all their energy — whether it’s SentiLink, which focuses on synthetic fraud, or something like Amino, which looks at the digital media supply chain, or companies like Marqeta. I’ve known Jason and his team for several years and they set the global standard for a digitally-native card and API platform. The work with the Marqeta team is just starting out but I’m immensely intrigued when you think about how they can grow with the commerce disruptors, the tech giants, digital challenger banks like Chime, and the top issuers.
At General Atlantic, I generally get pulled in to portfolio companies that span a few themes. I sit with the technology and financial services verticals. I look at big data firms that solve fraud and financial crimes — broadly, from KYC to AML. I look at digital mobile tools, like a company called AppsFlyer which does a lot around the last mile, mobile downloads, and attribution. I see broader authentication companies, as well.