When Visa announced plans to purchase Plaid for $5.3 billion in January 2020, the deal represented one of the largest acquisitions of a fintech upstart by an incumbent financial powerhouse.
But 12 months, one pandemic and one DOJ antitrust lawsuit later, and the credit card network provider decided the “protracted and complex litigation” necessary to consummate the acquisition would take too long to combat. The companies abandoned the deal exactly one year after it was announced.
Visa and Plaid might have chosen to go their own ways in the end, but the year wasn’t a total loss for the data connectivity startup: Plaid claims its customer count grew 60% in 2020, and company execs say it has had similar growth so far this year.
“Despite the outcome not being what we predicted when we went in, I think we as a company grew a lot and learned a lot,” Plaid CEO Zach Perret told TechCrunch.
More important than the continued growth could be its peek into how a company like Visa operates and figuring out what it could emulate as the startup targets global reach through deep connections with financial institutions around the world.
“I think we’ve benefited from having the opportunity to understand how Visa ran their business at scale. It’s very rare that one gets a look inside a company that has been operating for as many years as they have in financial services,” he added.
Plaid has been fairly quiet about its future plans in the wake of the failed Visa deal. As the company kicks off Plaid Forum — its virtual conference for customers — this week, however, it’s also unveiling a suite of new data, connectivity and payments features designed to increase trust, provide better insights and expand where and how financial services are delivered.
Building consumer trust
For a company that sells primarily to fintech startups and (increasingly) large financial institutions, Plaid sure does talk a lot about the consumer experience. Despite its B2B focus, consumer safety and trust were topics that repeatedly came up in conversations with Plaid execs over recent weeks.
Perret said that’s a relic of the company’s early days when the founders worked out of a small office off of San Francisco’s Union Square while the Occupy movement was protesting throughout the city, including right across the street from their first headquarters. “The metric I always wanted to move is: I want consumers to be less frustrated with financial services. I want them to dislike the system a little bit less,” he said.
Rather than build a single budgeting or bookkeeping tool, the team set out to create infrastructure that would power thousands of financial products, with the lens that if financial products went digital they would have more impact on more people, ultimately leading to better outcomes.
Today, Plaid is the connective tissue for thousands of financial services apps, enabling consumers to connect accounts and share data between them. As Plaid CTO Jean-Denis Greze said, “We are the front door for so many fintechs and financial services. If you want to use those products, you have to connect your accounts … and you do so with Plaid.”
To ensure consumers are comfortable sharing private financial data, the company is rolling out two improved features: a co-branded Consent Pane for partners to better explain the benefit of linking their financial data and a revamped Plaid Portal where consumers can see and manage which accounts they’ve linked with which app or financial institution.
“Frankly, fintech lives or dies on this idea of trust. If people are willing to change where their paycheck goes, if they’re willing to plan for their retirement via an app, that’s all about trust,” Greze said.
Providing better insights
Getting consumers to share financial data is one thing, but it helps if a financial institution can then do something valuable with that information after it’s received. Which is what the second part of today’s product announcements are all about.
A portion of Plaid’s work here is simply focused on improving categorization and simplifying the taxonomy of transaction data it shares with personal finance management apps. But a bigger portion revolves around identifying and exposing new types of data that can be leveraged by customers to create more compelling products and services for end consumers.
For example, Plaid is now capable of identifying recurring transactions that can be used to better understand and predict consumer spending habits. And with the addition of digital income verification — enabled through its integration with 40 payroll and gig platforms — Plaid can give lenders insights into the creditworthiness of applicants that go deeper than just reviewing a FICO score.
Providing this data might allow customers to make better products and better lending decisions, but again, Plaid says it’s the consumer who can most benefit from sharing this data.
“Our mission is to unlock financial freedom for everyone,” Perret said. “We believed that by making things digital, we can give consumers more transparency, more access and more control of their financial life. Then through having more options, you get better outcomes.”
Accelerating ACH payments
Plaid considers itself a data and analytics company, but increasingly it’s also the way many new consumer fintech accounts get funded. The company already offers payment initiation services as a way for its fintech customers to enable one-off or recurring payments into or out of accounts through ACH bank transfers.
That’s been a boon for new fintech apps and services by enabling them to improve conversion and get to the “magical moment” of opening and funding a new neobank, trading or cryptocurrency account without having to go through manual bank transfers.
“In the old days, if you wanted to sign up for an account with someone and you wanted to transfer money from your bank account into their account, you would have to do that by finding your account and routing number. And people would throw you to a micro-deposit flow that would take days and weeks, maybe even longer,” said Plaid COO Eric Sager. “But now you can validate that account ownership through your username and password and you can initiate the transfer.”
Signal is a new data and analytics tool being released by Plaid to help customers better assess risks associated with ACH bank transfers. Using machine learning models that provide real-time transaction analysis based on end-user connection activity and data gleaned through the Plaid network, Signal assesses the likelihood of a bank- or customer-initiated return and indicates whether a given transaction is high, medium or low risk.
Based on that assessment, customers can potentially fast-track users into their apps — allowing a brokerage customer to begin trading immediately, for instance, or a new crypto wallet owner to begin purchasing bitcoin.
“The goal is … to allow a developer to put someone in their app and give them that magical moment as quickly as possible,” Greze said, adding that Signal can “identify where you can feel really, really good that you can just pretend that the money’s transferred and let someone into your product.”
Expanding financial access in the US …
Plaid got its start mostly by serving fintech apps and helping them access data that end users had given them permission to view from banks or other financial institutions. Increasingly, however, the company is seeing demand from more traditional banks and credit unions to offer similar connectivity to their clients.
“Fintechs still represent the majority of our volume, simply because of how successful they have been,” Sager said. “On a percentage basis, though, there’s a tremendous amount of growth with [financial] institutions. There are almost 10,000 banks in the United States, and they’re rapidly making this transition to digital-first solutions.”
To help meet this demand, Plaid hired Ginger Baker to be its head of Financial Access last year, and it has systematically been working to expand its ability to serve community banks and credit unions.
“We intentionally called this group within Plaid financial access for two reasons. First, the principle that is the foundation for everything this group does is that people have the right to access their financial data and permission that data to the tools they need,” Baker said. “The second reason we call it financial access was so that we can have a conversation with banks — that financial institutions also deserve access to the same kinds of tools and technology that developers have been using for years.”
To that end, the company has partnered with Jack Henry and Q2 — two of the largest technology providers to banks in the country — as one part of this initiative. And for banks that don’t rely on those vendors, the company has been working to build direct integrations with those institutions to meet end-customer demand.
“First and foremost, this is about meeting consumer expectations, especially with the transition that we all just went through in the time of COVID,” Baker said. “And the expectation is that their financial institution, whether that’s a fintech or a traditional bank or a small community bank, is enabling that person to take advantage of digital tools.”
… And around the world
It’s no surprise that Plaid has global ambitions. It first entered Europe in 2019 and now has offices in London and Amsterdam. And its account information services APIs are now in use in the U.K., France, Ireland, the Netherlands and Spain.
According to COO Sager, Plaid benefits from more and more fintech developers operating in more places. “It’s not just American companies coming to Europe, but it’s European companies coming to America, European companies coming to Canada, Canadian companies going to Europe and any of the other combinations,” he said.
Furthermore, he believes consumers will want to be able to live their financial lives across borders.
Just like in the U.S., though, Plaid wants to provide more than just data connectivity. Earlier this summer, it began offering payment initiation services in the U.K., in addition to its data and connectivity offerings. At the Plaid Forum, the company will be expanding payment offerings to France and Germany in beta, with Ireland, the Netherlands and Spain coming soon after.
Nor is it stopping there: In 2022, Plaid plans to continue its worldwide expansion by offering financial data, connectivity and more in Austria, Belgium, Denmark, Norway, Poland, Portugal and Sweden.
Building a new digital finance network
At the time it was announced, the Visa deal was positioned as a way to accelerate Plaid’s global reach. While going it alone will no doubt be more of a challenge, there’s still a great opportunity for Plaid to build its own version of a 21st century payments network — one that relies on connectivity and data as the underlying building blocks.
In a conversation with TechCrunch, Perret said that in the same way that card networks like Visa operate a multisided ecosystem between a consumer, a merchant and an underlying fund source or bank, in most cases Plaid sits between a consumer, a fintech app and an underlying data source or bank.
”We think about the components of a network, and how does that network apply to our business,” Perret said. “We think about financial institution relationships, and how we can learn from the way Visa has worked with financial institutions for decades and apply some of that into the way that we run our business day to day.”
Plaid won’t say it’s a payments business, even if payments is clearly a part of the company’s global roadmap. What it will say is that it’s just building the tools to enable the next set of digital financial services.
“Our philosophy is to provide the building blocks, and then we’re often surprised by how developers can use those building blocks to do something clever,” CTO Greze said. “We don’t know what that will look like. But we know that we make it easier for consumers to get started, make it easier for developers to build products full of insights, and we make it easier even for non-fintechs to start to offer things like payments or loans.“