Plaid is branching out from its role as provider of bank account data to fintechs. It now strives to become a one-stop shop for a host of services fintechs and banks need: new customer onboarding, know-your-customer and anti-money-laundering work, identity verification and fraud detection.
The San Francisco startup became a behemoth valued at $13.4 billion by doing one thing well: screen-scraping consumer bank account data on behalf of fintech clients, giving them the data they needed for their apps to work. More than 6,000 fintechs use its services today, according to the company. This network effect gave it leverage to sign up bank partners. In recent days, its been trying to shift away from screen scraping and toward data sharing through application programming interfaces, a method that is considered cleaner and more secure.
On Wednesday, Plaid announced that it’s rolling out new technologies for fintechs and banks.
“It’s a natural evolution that leverages Plaid’s leading position in account aggregation,” said Todd Baker, a senior fellow at the Richman Center for Business, Law and Public Policy at Columbia University and the managing principal of Broadmoor Consulting.
In an interview, Plaid’s chief technology officer, Jean-Denis Greze, said clients have been asking for these technologies.
“When we talk to our customers, what we've been learning is that what they love about Plaid is that it’s simple, it's seamless and frictionless for the app user,” Greze said. “So they've been asking us, if we look at our entire onboarding flow for a user from account creation to identity verification to account linking and then after that, account funding or disbursement, can Plaid bring that ease of use and that safety and security to more of the flow?”
Greze describes Plaid as “chipping away at the friction around onboarding.”
Plaid also thinks it has a unique view into fraud and the ability to block fraudulent connections.
A stable of companies like Q2, Alloy, Mantl, Nice Actimize and many others have been offering technology in these areas for a long time.
Greze says these companies only look at a slice of fraud or risk.
“What a lot of our customers do is they try to put together products by half a dozen companies to solve these problems,” he said. “But the reality is that because there's so many little silos of information, the end result isn't nearly as good as if you just had access to all the information, you could make much better fraud and risk decisions.”
Because Plaid’s network is so large, it has a unique viewpoint and can leverage multiple data points to make better decisions on fraud and risk, he said.
“In order to truly have the best edge on anti-fraud, you need to be able to have full visibility from the very first moment that you see a customer enter your sign-up flow all the way through to the point where they're actually giving you their money,” Greze said.
The company’s identity verification technology also helps avert fraud, Plaid executives say.
“There's so many different specific vectors of fraud that are popping up and you need to have a new vendor to deal with each specific one: Is it synthetic fraud today? Is it a deep fake tomorrow? There's all these different methods,” said Alain Meier, head of identity at Plaid and former CEO of Cognito. “So we're trying to make identity verification in a box. You have the one system that you're able to integrate once, and you can enjoy all of the protection that you need for each of those specific kinds of fraud that we see.”
At the same time, Plaid has an “ethos of letting more good users through,” Meier said. “It's easy to block too many transactions.”
Today, Plaid’s identity verification is Cognito’s technology; Plaid bought the company in January and integrated its tech into the Plaid Link app consumers use to connect their bank accounts to an app. While there is a road map for building out that platform, Plaid is not ready to share those plans.
Plaid announced its Signal technology last fall. It analyzes fraud as money is being moved around and produces a risk score on each transaction, which customers then use to decide whether to put the transaction through.
“It's a model that uses close to a thousand risk factors and provides our customers with a risk score and supporting insights about a particular money movement transaction,” Greze said. “What's interesting about Signal is that it looks at some categories of risk factors that are only available to Plaid. One example would be Plaid connection history. Account usage, past ACH events, identity, change history are data points that as a network allow us to provide a better fraud product at the end of the day.”
Signal and the ID verification can be used together, so if a transaction has a high risk score, the payee can be asked to provide more proof of identity.
Plaid has analyzed and scored more than 10 billion transactions, Greze said. The technology is being used by H&R Block and cross-border payment company Uphold. Plaid will probably make it more widely available by the end of this year, he said.
Observers on Twitter suggested these new products are Plaid’s attempt to best rival Stripe, which recently announced it now has a data aggregation service called Financial Connections. Under the hood, the payments company is using the data aggregators (and Plaid competitors) MX and Finicity to gather bank account data.
Greze dismissed the idea that Stripe is a threat to Plaid.
“Stripe is largely wrapping MX and Finicity, who are companies in the space that we're very familiar with,” he said. “We've been competing with Yodlee, MX and Finicity since day one at the company. And our customers have found us time and time and time again to have connections to more financial institutions, more than 12,000. I think Stripe has something like 5,000.”
Plaid’s stiffer competition may come from the many well established and new tech companies in account opening, identity verification and fraud detection.
“Competition will be fierce, with many newer tech-focused providers like Trulioo, Onfido and Jumio providing ‘identity as a service’ to smooth digital account opening, reduce fraud and facilitate Bank Secrecy Act and anti-money-laundering compliance,” Baker said. “Plaid will have a tough time usurping existing relationships in fintechs and traditional banking, but it will have an advantage in new deployments with existing Plaid aggregation customers as it has promised that no additional integration work will be required to use its solution.”
What matters most in the identity verification space is accuracy and the avoidance of false negatives that reduce customer conversion rates and hurt profitability and growth, Baker pointed out.
“If Plaid’s identity service can deliver on its promise of superior performance, it will inevitably take market share from others,” he said.
