Ben Gilbert: uncertainty

Transcript context

…Those are folks like First Data and stuff like that, right? Yes. 0.15%–0.2% goes to the network. This number is actually quite hard to find. You read Visa's entire annual report and you're like, wait, but what part of the split do you actually get? It's because they get it in a variety of different ways. I would say, I don't know if the Visa people would tell you this is intentionally obfuscated or if it just ends up being obfuscated, but it's not super easy to figure this out. Visa, let's round it to 0.2%, gets 20¢ of that $100 shoe sale. But the cool thing about their 20¢ is there are basically no variable costs. It's not dealing with fraud. It's not moving heavy data around. Merchants are allowed to have a 20-character name in Visa's network. This is tiny amounts of data. Stack as much metadata as you want on top of that, we are not shipping around huge payloads here. There are no NVIDIA chips that need to run in these data centers to do any crazy LLM processing. This is just shipping very small pieces of information around. The payload size of the data has remained infinitesimally small relative to the amount that technology has progressed. This 0.2%, the 20¢ on the $100 transaction, very low variable costs associated with that. A few caveats on this. Debit is significantly less in most cases, and often thanks to regulatory reasons. The logic here is nobody's actually taking any risk to extend credit, so banks should not get to make a bunch of money on debit. It's literally just moving money out of your account and into the merchant’s account. Debit cards are going to be less. Smaller merchants often pay closer to 3% than 2%, because they're just doing lower volume. For these small businesses, the acquiring bank actually has to do a lot more work. Think about how difficult it is to market a credit card to an individual while small businesses behave like individuals. Because the acquiring bank actually has to do a lot more work and incur costs, they get to make more money. There's this very interesting thing that has happened, where interchange is intentionally quite flexible. This is a playbook theme that I want to pull forward. This business is probably the greatest masterclass in the entire world on incentive alignment. I was talking with Lisa Ellis at Moffitt Nathanson who woke me up to this idea. The interchange pool has an elegance to it. Since the money never actually gets sent to the merchant, the network and its partner banks or constituent banks can figure out exactly how it should flow in each of these particular types of transactions. It's an envelope of value that the whole ecosystem can play with. I think an important thing to realize about interchange is that it's intentionally flexible. Which brings up an obvious point that we perhaps didn't highlight specifically as we should have earlier. This network is actually a five-sided system. There's the consumer that is buying something, there's the merchant that is selling that something to them, there's the Visa network in the middle that's the third party, but then there also are the fourth and the fifth parties, which are the banks for each of the consumer, the issuing bank, and the merchant, the merchant's bank. This envelope of value concept makes sense, because those three parties in the middle, Visa and the two banks, need to split up the value. Depending on who is doing what work, it should be split different ways.…

Stored transcript either side of the excerpt. The highlighted words are the published quote; the surrounding text is unedited source, never generated.