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Stripe and Plaid suit up for battle

The winner of this fintech war will likely be consumers

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Recent product news from Stripe and Plaid indicate the two private companies are gunning for one another as the market for B2B financial technology matures, expands and individual players increasingly overlap.

It might sound silly that Stripe, best known for its payments technology, and Plaid, best known for its API that connects consumer bank accounts to third-party services, are competing. It isn’t.

The quote, “All software tastes like chicken from a financial perspective” is both funny and true. It’s also largely true for fintech companies, but for a reason unique to the space: Fintech startups, unicorns and even public companies tend to broaden their capabilities over time, adding more and more competencies.

Both B2B and B2C startups have similar motives. Customer acquisition (advertising, onboarding, etc.) is expensive and competitive, so once a fintech lands a user or customer, it’s best to extract as much value from them as possible. That’s why companies like Plaid and Stripe build and buy to serve more and more of their customers’ needs — until they wind up at each other’s doorstep.

What happens once they do? We’re going to find out.

Recent skirmishes from the Great Fintech War

In January 2022, Plaid announced that it was buying Cognito, a decision that TechCrunch wrote was part of a move “beyond merely connecting accounts.” In essence, Cognito added know-your-customer (KYC) and anti-fraud tools to Plaid’s feature list. By doing so, it could offer its customers far more than just account connections.

In 2021, Plaid had bought a company called Flannel that focused on payments. With account connections, security tooling and payments tech, Plaid was building and buying its way into a larger potential total addressable market — one that’s already being attacked by other private fintechs.

It’s obvious that Stripe has broadened its feature set away from its original remit. The company has so many services that its on-site menus are becoming more of a catalog than an organizational tool. Seeing the company launching something new here and there, then, is nothing out of the ordinary.

But in early May, when Stripe announced “Financial Connections,” a service that will, TechCrunch wrote, let its “customers connect directly to their customers’ bank accounts to access financial data to speed up or run certain kinds of transactions,” we took note.

The product announcement put Stripe on a collision course with Plaid’s core business, even if it was fair play — the latter company had already told the market that payments were on its mind through the 2021 Flannel deal.

Still, Plaid clearly took exception with what its leaders implied was a sneaky means of acquiring information and a lack of transparency on Stripe’s part in light of their partnership and history.

With the two companies fussing at one another on Twitter, it was clear that the gloves, as much as they can be in the API world, were off.

That was not the end of the matter. Plaid extended its Cognito news this week, adding more identity tooling and faster account funding and transfers. The two companies are now standing face to face, if not already on each other’s toes.

Plaid’s recent moves are less unexpected than they might seem at the surface. Recall that Visa almost bought Plaid for $5.3 billion before that deal fell apart in early 2021 due to regulatory concerns.

The potential combination first gained a higher level of complexity when, in November 2020, the Department of Justice sued to block Visa’s proposed purchase of Plaid. The DOJ asserted that Visa was buying Plaid to eliminate a competitor in the world of online debit transactions. Visa denied that assertion, stating that Plaid was not a payments company and, therefore, not a direct competitor.

But one of the facts that came to light at the time was that Visa in fact did see Plaid as a potential competitor. One Visa executive even likened the startup to an island “volcano” whose capabilities at the time were just “the tip showing above the water,” warning that “what lies beneath, though, is a massive opportunity — one that threatens Visa.”

And when conducting due diligence in the acquisition process, Visa’s senior executives reportedly grew alarmed by Plaid’s plans to add “a meaningful money movement business by the end of 2021.”

Considering its history, Plaid’s recent product announcements are hardly a surprise. If anything, most of us are wondering what took so long.

A $100 billion+ tussle

Naturally, for us consumers of fintech services, seeing majors gear up to fight across increasingly broad swaths of the fintech world is good news. The more they fight, the better the resulting service mix on offer and the lower the price point of those products should be. But for their respective investors, it must be a somewhat stressful time.

How so? Stripe currently is valued at about $95 billion, and needs to go public at some point, while Plaid is worth over $13 billion. This means that as the two companies increasingly find themselves competing for the same customers, they are going to have a rather formidable opponent to best. That means more spending on advertising, perhaps lower win rates for sales teams, and pricing pressure.

What’s good for us end users, then, could be more irksome to the companies in question. And Stripe and Plaid are hardly the only players to face such a situation. To pick another example, Robinhood went crypto. Now FTX is going equities.

Fintech: Tastes like chicken.

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