On Innovation and How Protocol Design Trumps ‘Legal’ Design

1/n Visa today has a $328B market cap, bigger than virtually every bank on earth (JPM at $384B is the only one bigger). And yet it started out as a non-profit owned BY banks. How did it become more valuable than its “parents”?

2/n Since Visa intermediates rates between banks (“interchange” between card issuers and merchant acquirers) and clears transactions between issuing banks and acquiring banks, it is the ultimate “central ledger” or platform for finance.

3/n It was originally part of Bank of America, called BankAmericard. But to syndicate this platform beyond BoA, it became a consortium — Visa. Independence (to ensure the central platform didn’t take too much economic rent!) was ensured via non-profit ownership structure

4/n that is, until 2008 when it went public in the largest US IPO of all time. It reorganized from a non-profit to a for-profit, partially to avoid anti-trust issues (all of the banks get together and decide what to charge merchants…imagine the airlines doing this!)

5/n To me, this is a great example of where/how decentralized networks can preserve true independence (value accrues to network participants vs central player) — and why protocol design, if you will, trumps legal design

6/n Visa is a great and incredibly valuable company. The “protocol” is one of transactional authorization/settlement/clearance. But it was enshrined in a once not-for-profit central actor who today has more value than all but one network participant

7/n Despite a lot of “private blockchain” nonsense out there, this is a great example of how Visa could have or should have been constructed by banks way back when to ensure perpetual independence and inability to capture value as central ledger.

8 (fin): Protocol design matters. And a well thought through protocol is more valuable and protective than lawyers, contracts, and even governments — it will survive all of them.

 

 

 

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