Plaid: Stitching Together the Future of Finance 🪡
Plaid's origins from a PFM app to a data connectivity platform, a timeline of key events, an overview of its product stack, two major strengths, and
Hey Fintechers and Fintech newbies 👋🏽
This is an extra special edition that I wrote on This Week in Fintech, and sponsored by a fintech that I have a particular fondness for because of its area of operation, the way it's expanded over the past 11ish years, and its focus on data connectivity, a foundational component in the fintech ecosystem…Plaid.
Plaid built an Open Banking connectivity platform long before Open Banking was made official in the UK/EU in 2016 through PSD2 and over a decade before the recent finalisation of the 1033 rule from the 2010 Dodd-Frank Act in the US.
In this deep dive, I start in those early days of Plaid's journey from its founding to its rapid evolution, key products that continue to define it, its impressive product velocity and the opportunities that lie ahead as it shapes the future of financial connectivity.
This post is a preview of the first few sections and here’s what to expect in the full article which you can find on TWIF:
Plaid’s original offering
A timeline of key events from 2013-Present Day
The Visa acquisition offer (an offer they DID refuse *Godfather voice*)
Future Fintech’s ‘Plaid Moment’
Their latest product launches
Overview of their broad product stack
Latest Plaid Numbers
Plaid’s two biggest strengths: Product Depth & the Plaid Network
Logical opportunities and some speculative ones
💡 This newsletter has been kindly sponsored by Plaid and hosted on the extensive This Week In Fintech network. Plaid provided some up-to-date numbers and product releases but this has been written independently, because frankly, I wasn't sure if the Plaid team would approve all my gifs and puns 😂. The following sections are a preview of the full article which you can find at the link at the end of this short previewThe Early Strands of Plaid 🪡
Plaid didn’t start out as a financial data connectivity for the masses.
Former Bain associates and Plaid founders Zach Perret and William Hockey initially planned to launch a consumer finance app to help people better understand and analyse their finances.
The inspiration came in 2012 after observing that customers were frustrated with financial products, they weren't getting the financial tools they needed, and there was a broader mistrust of banks at the time to look out for consumers' interests. This was post the 2008 financial crash and around the time of the Occupy Wall St movement, where frustration and lack of trust in traditional financial institutes reached a boiling point across the West.
Some of the things they were looking to build were certainly ahead of its time and long before the PFM boom of 2018 such as tools that could help consumers analyse their spending, recommending places where you could spend less money, and more broadly, helping consumers better understand spending habits and where they can improve.
The footprint of their early Personal Finance Management product can be seen in a snapshot of the original website where they talked about changing the way people use data.
However, they quickly realised that the challenge of creating customer-centric financial management products was much deeper than creating a front-end application.
“We started to realise we were struggling so much of the time because we couldn’t connect anything to financial services,”
William Hockey, Plaid’s then Co-founder & CTO and now founder of Column, said in an interview in 2013.
“The fundamental building blocks that make it really easy to build an application, we just couldn’t find.”
The bigger problem that needed solving was accessing reliable, standardised data from financial institutions. At the time, there was no universal way for developers to connect to bank accounts, retrieve transaction data, or perform authentication seamlessly. Each FI had its own data structures, security protocols, and login methods, which made it nearly impossible to scale a finance app that required connectivity to multiple banks, as the majority of the effort was spent on building those connections rather than creating a customer-centric and feature-rich consumer-facing app that solved genuine problems.
Note: The EU Open Banking framework designed to provide standardised access, security protocols and authentication was in its infancy at this time.
This realisation led to their pivot (cue the classic ‘Ross from Friends shouting “pivot”’ gif): instead of building a consumer-facing app, they would focus on creating the “plumbing” laying the foundation for the next generation of fintech applications.
In 2013, the Plaid we know and love today was born.
Their bold decisions did not stop there though. They realised that such a Big, Hairy, Audacious Goal (BHAG) would benefit from a prebuilt use case, so they joined the 2013 Disrupt NY Hackathon, and with the help of friend Michael Kelly, they built Rambler, a web app that let users view their credit and debit card transactions on a map and used the Foursquare API for locations and the Plaid API to access user spending data.
👀 FUN GAME: To show the size of the achievement of Rambler taking 1st prize at TechDisrupt, I've attached an image of the main hall above. Zach, William and Michael are in the above picture, kinda like a 'Where's Waldo' but for fintech. You have 30 seconds. See if you can find them (HINT: Use the image at the top right as a guide)They took first prize at the event, $5,000, and earned even more valuable press for the Plaid API in the process.
By 2014, Plaid had begun attracting early adopters, including notable fintech startups like Venmo and Acorns. Venmo, with its innovative peer-to-peer payment system, leveraged Plaid’s API to provide users with seamless bank account linking, enabling instant transfers between friends. Acorns, a micro-investing app, used Plaid to automate the process of rounding up purchases to the nearest dollar and investing the spare change.
These early clients underscored Plaid’s role as a critical enabler for fintech innovation.
The timing was also ideal, as the U.S. fintech sector was poised for massive growth, and many startups were looking to launch products that relied on secure, standardised financial data. Plaid's offering not only saved them countless hours of development but also enabled a consistent and reliable user experience, which was crucial in building trust in nascent financial technologies.
The Fabric of Fintech: Plaid’s Timeline of Connectivity ⏳
From those early hackathon days and early client wins to today, they've gone through quite the journey, growing the breadth of their financial data connectivity offering as well as the depth of those early features and experiencing a major acquisition attempt in the process.
2012-2013: Consumer Finance app and pivot to developer API
Founding & Early Vision: Zach and William launch Plaid with the goal of creating a consumer finance app to help users understand their spending.
Initial API Launch: Realising the challenges of connecting to multiple banks, they pivot to offering a data connectivity API for developers. This new direction aims to simplify access to financial data. This API provided functionalities like account verification and transaction data retrieval, laying the foundation for fintech applications.
2013-2014: Initial Client Traction
Early Clients: Plaid gains traction with clients like Venmo and Robinhood, who rely on Plaid’s API for account verification and funding connections, allowing users to link their bank accounts easily.
2015-2018: Scaling and Expansion of Product Suite
Series A Funding: Plaid raises $12.5 million from Spark Capital to accelerate its API development and expand its reach among U.S. fintechs.
Personal Finance: Launched a suite of data solutions to enable personal finance use cases, including transaction data, investment accounts and liabilities like loans and credit cards, so that PFMs can get comprehensive financial overviews for users.
Series C Funding: Raises $250 million in Series C funding led by Kleiner Perkins, valuing Plaid at $2.65 billion. This round includes major investors like Andreessen Horowitz and Index Ventures.
International Expansion: Began extending services beyond the U.S., starting with Canada, to support a growing global client base.
Plaid Link: Introduced in 2015 as a secure and user-friendly way for first-time fintech users to connect their financial accounts, setting a new industry standard
Auth Product: Plaid launched 'Auth,' facilitating instant account verification for ACH payments, reducing reliance on traditional micro-deposit methods.
Series B Funding: Secures $44 million in Series B funding in 2017, led by Goldman Sachs Investment Partners and also included Citi & Amex.
2019-2020: Strategic Acquisitions and Product Innovation
Acquisition of Quovo: Quovo, a data platform specialising in investment and brokerage accounts, was acquired to enhance Plaid's wealth management offerings.
Payment Initiation Services: Launched services enabling direct bank payments, positioning Plaid in the payments sector and offering alternatives to traditional card networks.
European Market Entry: Expanded into the UK and Europe, adapting products to comply with PSD2 regulations and supporting open banking initiatives.
2020-2021: Visa Acquisition Attempt
Visa Acquisition Attempt: In January 2020, Visa announced its intention to acquire Plaid for $5.3 billion, aiming to integrate Plaid's data connectivity solutions into Visa's stack. The U.S. Department of Justice filed an antitrust lawsuit to block the acquisition, citing concerns over reduced competition in the online debit market. In January 2021, Visa and Plaid mutually agreed to terminate the merger agreement, allowing Plaid to continue operating independently.
Series D Funding: Plaid raises $425 million in a Series D round led by Altimeter Capital, Silver Lake, and Ribbit Capital, along with long-standing investors like Index and NEA, elevating Plaid's valuation to $13.4 billion.
Big Bank Backers: JP Morgan Chase also participated in this round, marking a sea change from traditional finance and joining Citi, GS, and AMEX, placing a long-term bet on Plaid's transformative impact on FS.
Accelerated Adoption of Digital Finance: Plaid benefitted from the massive growth of fintech adoption as a result of COVID, which it noted grew from 58% to 88% in 2021 – a 52% increase year-over-year. This accelerated Plaid's roadmaps, as well as those of legacy players like banks and encouraged hyper-frenzied investment rounds in fintech companies, most of which were built on Plaid.
Open Finance Solutions: To help move the industry forward, Plaid released Plaid Exchange (now Core Exchange), a free toolkit to help banks and credit unions build safe, reliable and interoperable data connectivity for open banking services.
2021-2022: Advancements in Payments, Fraud Prevention, and Credit
Push Into Payments - Plaid announced a payment partner ecosystem with nearly 50 payment companies to integrate bank-based payments. In addition, it launched Plaid Transfer, an all-in-one bank payment solution and Signal, a machine-learning transaction risk engine to analyse the likelihood of ACH returns.
Fraud Prevention: First foray into fraud prevention with the acquisition of Cognito, an identity verification and compliance platform.
Identity Verification: Shortly after the Cognito acquisition, Plaid launched Identity Verification to streamline user onboarding and enhance security for digital financial services, enabling organisations to verify user identities swiftly, often in under 30 seconds, utilising liveness authentication and other advanced methods to combat fraud.
Monitor: Monitor was also launched, a tool that automatically scans customers against regularly updated government AML and politically exposed persons (PEP) lists.
Income and Employment Verification: Launched products to digitally verify income and employment status, assisting in lending decisions and financial planning applications.
2023: Deepening Fraud and IDV products, Plaid Check, and enterprise growth
Anti-Fraud Network: Plaid introduced Beacon, a collaborative anti-fraud network enabling financial institutions and fintech companies to share critical fraud intelligence via API aimed at enhancing fraud detection and prevention across the industry.
Expanded Credit Solutions: Plaid formed Plaid Check, a subsidiary consumer reporting agency (CRA) focused on building products for customers who want ready-made credit risk insights from consumer-permissioned cash flow data.
Verify Once, Verify Everywhere: In June 2023, it expanded its IDV offering by introducing a "verify once, verify everywhere" experience. This enhancement allows consumers to fast-track verifications across Plaid-powered apps and services, reducing friction during the onboarding process while maintaining compliance with KYC regulations.
Growth in Enterprise Clients: Plaid reported that its enterprise customer base had grown to over 1,000, with enterprise growth starting to outpace the rest of its business. This expansion reflects Plaid's success in diversifying its client portfolio beyond traditional fintech startups, adding the likes of H&R Block, Rocket Mortgage and Citi to its extensive client list.
You can see from the timeline that the broader mission of providing connectivity to the whole of financial services has gone much further than just transaction data, and the evolution from that initial consumer finance app idea to the present day has been rapid. Beyond transaction insights and connectivity to banks, it’s also enabling payment initiation (aka Pay by Bank), building fraud detection tools, providing income and employment verification products, and much more.
Fast forward to today, Plaid operates in 20 countries, powers 1000s apps, provides hundreds of millions of connections, and has helped power over half a trillion dollars in bank payments…
To read the rest of this article, including:
The impact of the Visa Offer
A detailed overview of its latest releases
A full overview of Plaid’s current product stack across key areas supported by the below bespoke visualisation
My thoughts on its two biggest strengths (including its use of the network effect)
Where I think they’ll innovate next
Its big clients and the breadth of sectors they support
And much much more….
…Click the image below and scroll down to The Visa Offer section. Make sure you drop a thumbs up on the article if you enjoyed it and come back here to drop a comment :-)
P.S. If you’re interested in sponsoring an edition or working with me on something else product innovation and strategy related, reply to this or send me an email with details to jas@bitsul.co.uk 😊
Excellent content, Jas! Greetings from Brazil! 🙌