The data aggregator Plaid and Wise, a U.K.-based provider of cross-border payments, have forged an agreement through which Wise will work directly with the 6,000 fintechs that are Plaid customers.
This means Wise's 13 million customers can connect their Wise account directly to fintechs like Venmo, Chime, Truebill, Acorns and Betterment and move money back and forth. They will no longer have to link to a traditional bank account or transfer money to and from a bank account to use fintech apps for things like person-to-person payments, investing or personal finance.
It's an example of how Plaid is extending its reach throughout the financial industry, how it's bringing more financial players of different kinds into its fold and how the fintech ecosystem could start to free itself from its dependence on traditional bank accounts and bank payment rails. This kind of push into money movement is the reason Visa tried to acquire Plaid in early 2020. Later that year, the Department of Justice moved to block that merger, citing antitrust issues, and the two companies dropped the idea. It's also the reason Stripe announced its own open banking initiative through which the payment provider will work directly with fintechs.
"The Plaid deal allows Wise to provide its borderless account customers with much of the digital functionality of a bank account in the U.S.," said Todd Baker, a senior fellow at the Richman Center for Business, Law and Public Policy at Columbia University and managing principal at Broadmoor Consulting. "This is a very attractive feature for its internationally active customer base and a coup for Plaid."
Wise and Plaid say their collaboration will provide convenience to Wise customers.
"Wise has seen a tremendous uptick in its number of users, and as those users have been transferring money in and transferring money out, having Wise as a potential primary account by which a consumer would want to move and manage their money became more and more critical," said Raja Chakravorti, universal data access lead at Plaid. "It's not that different from the way Venmo accounts have somewhat evolved into primary checking accounts, whereas initially they were more oriented around peer-to-peer money transfer."
Relationships like these help Plaid expand its network effect and its ability to move money across that network.
"We have always found that the more seamless we can make an experience for a consumer to connect their accounts in a way that allows them to deploy directly into the solutions they want to use, the more efficient it's been for consumers," Chakravorti said. "We are trying to focus on ensuring that there's as seamless a movement of money as possible."
Wise says it provides consumers a much better deal in money movement than banks do.
"We've seen in the market more consumers and small businesses are realizing they're getting ripped off by their bank or cross border money transfer provider," said
Wise provides transparent pricing at a mid-market exchange rate, she said.
"We also have price comparison tables and will show consumers if we aren't the cheapest," Kean said.
Wise selected Plaid as a data aggregator because of its breadth of app connections in the U.S., she said.
Plaid's Core Exchange lets any institution build API-level connectivity to other institutions. It uses the FDX specification for its application programming interfaces. About 1,000 financial institutions use Plaid's data connectivity suite, which includes Core Exchange.
Fintechs and banks have been moving toward API-based data sharing and away from the screen-scraping methods Plaid and others use where no API is available.
A Plaid-sponsored Harris poll found that 69% of consumers would leave their primary financial institution to go to a financial provider that could connect their information to fintechs.
"It's dramatic and consumers have already kind of made this choice for fintech," Chakravorti said.
Wise customers have already begun using the Plaid connectivity, the companies said. Consumers are connecting their Wise accounts to peer-to-peer payment apps and investment apps. Business customers are using it to send funds to payroll companies and to connect to neobanks, as well as pay credit card bills and pay tax in several states, among other use cases.
Some industry watchers expressed some concern about the announcement, pointing to the fact that Wise's own U.S. disclosure states that any balances in its borderless account are not insured by the Federal Deposit Insurance Corp. and are invested in accordance with money transmitter laws.
"The customer is relying on Wise's continuing solvency to protect its funds," Baker said. "There is a very serious regulatory gap here that Wise is exploiting. The money transmitter licenses that Wise holds in various U.S. states were not designed for enterprises that hold ongoing balances for customers. They were designed for the rapid transmission of money and not for holding ongoing customer balances. As a result, they provide no protection for those balances in the event that Wise fails."
If Wise were to go bankrupt, Baker said, the holders of its borderless accounts would be unsecured creditors and would likely lose most of their funds.
"This in turn creates a real risk of a 'run' on Wise in the event that it runs into any difficulties, and thus increases the overall risk profile of the Wise business," Baker said.
A spokesperson for Wise said all customer funds the company holds are protected and safeguarded.
"All funds would be returned to customers in the rare and unlikely event Wise becomes insolvent," he said.
Regulatory issues aside, deals like this seem to be the way of the future as payment providers and fintechs seek to grow and save time and money.
"What every payment and money transmitter wants is more currency through their platform because volume is key to their profits," said Brad Leimer, co-founder of Unconventional Ventures. "So it makes perfect sense that Wise would want to connect every type of account it can by using Plaid to facilitate new user growth and reduce any impediments to sending and receiving money."
This is why more banks and networks are building their own rails to facilitate P2P payments and remittance channels, he said.
"The platforms that move the most money through the system achieve a greater scale of efficiency for their ecosystems," Leimer said. "We will see much more of this."
