Alex Rampell on why the best companies have hostages, not customers

Alex Rampell (0:00)

Every human in the workplace wants two things. They want to be lazier and richer.

Auren Hoffman (0:03)

My guest is Alex Rampell. Alex is a general partner in Andreessen Horowitz, where he leads the apps fund, and he's driven a lot of the firms, FinTech Investing, like Plaid, Mercury, Opendoor.

Alex Rampell (0:14)

Hey, do you want to go home at like 11 o'clock tonight or five o'clock tonight for the next like five weeks?

Everything else stays the same. It's like, I think I'd rather go home at five o'clock. Yeah, would you rather make double the amount of money or half as much money? Right, you just got to choose, right? Yeah, I think I'm going to make double as much money.

Auren Hoffman (0:32)

Hello, fellow data nerds. My guest is Alex Rampell. Alex is a general partner in Andreessen Horowitz, where he leads the Apps Fund and he's driven a lot of the firm's fintech investing, like Plaid, Mercury, Opendoor. Before A16Z, he was a serial founder. I met him a long time ago when he was co-founded TrialPay, which Visa acquired. He also co-founded a firm with Max Levchin. He even started building software companies when he was a kid, I think when you were 13 or 14

Alex, welcome to Summation.

Alex Rampell (1:03)

Yeah, it's great to be here. Good to see you cross-country.

Auren Hoffman (1:06)

The first question I've been meaning to ask you for a really long time, I've never actually asked you this, is why are Visa and MasterCard so enduring?

Alex Rampell (1:14)

There's a great term that was coined by this guy, D-Hawk, and he was the founder of Visa and it's called chaotic. It's chaotic. Is that even a word? He made it up. It's a portmanteau of chaos and order.

And the origin of Visa, like he wrote a book, I think it's called the Chaotic Organization. So if you want to dig into this. I read it, yeah. Oh, you did? Okay, great.

Auren Hoffman (1:36)

Oh yeah. Yeah, I actually talked to him a few times back in the day.

Alex Rampell (1:40)

That's great, yeah. He died a few years ago.

Auren Hoffman (1:43)

True legend, yeah.

Alex Rampell (1:44)

Okay, so here's why it's so impregnable, is that normally, it's almost like a decentralized thing before crypto. So, the way that I describe it is first, it's helpful to understand what Visa and MasterCard are. They are the intermediaries between really four parties. So there is, I'm going to use the example of you, Auren, have a Visa card that is issued by a bank. So a bank gives you a card. So you're party one. Party two is your bank, we'll call it Bank of America. It's that that runs on the Visa network. So Visa's party three.

You go to Chipotle, that's party five. But who's party four? I skip party four, but I'll get to that. Party four is, call it Chase, who signed up Chipotle to go process cards for them. So there are five parties. There's like, these really take it's like, well, I'm just buying a burrito at Chipotle. There's Chipotle, there's me. But no, no, like Chipotle has a bank, you have a bank. And then in the middle is this company called Visa.

And what Visa and MasterCard really do is they compete to get issuers to issue their cards. But they don't set prices, right? They don't, they don't take, like most people say, oh, you know, I'm paying 2% or 2.9% for credit card processing. Visa is so greedy. Most of that doesn't go to Visa. Visa makes a very, very small amount per transaction.

Most of it goes to the issuing bank. But Visa constructs the rules. They handle the kind of settlement of funds. They're just kind of this like permanent intermediary. And originally, it was owned by all of the banks. So the origin of Visa is that Bank of America, which originally, if you go way, way back in the eons, it was called the Bank of Italy. It was in San Francisco. There was a major earthquake. There's this famous story of like the proprietor, I forgot his name, Italian guy, Italian American, was giving out loans in 1905 after the mega earthquake. Bank of America now is based obviously on the East Coast after many, many, many mergers. It kind of changed the name for Bank of Italy to Bank of America when it was a West Coast institution.

Auren Hoffman (3:46)

It was like Giannini, right? Because there's so many things in San Francisco are named after him, right? Yeah.

Alex Rampell (3:52)

And because he famously helped the city rebuild when, why would I give you a loan? You're not, you have nothing. Your entire thing burned down in the fire after the earthquake. Bank of America released something called the Bank of America card.