Can Plaid succeed where card giants fall short?

Plaid is betting the ongoing rush to mobile commerce will fuel its next step as a technology provider behind digital payments.

To this end, the company has assembled what it calls an "ecosystem" of corporate partners that offer different types of payment technology. Each partner in Plaid's ecosystem provides a service that's accessible through the larger network.

"If you think about the payment experiences that consumers want today, they can differ based on what type of activity the consumer is engaged in," said Paul Williamson, head of partnerships and revenue at the San Francisco-based Plaid. "So we wanted to build for different use cases."

There are more than four dozen partners thus far, with many focused on specific niches.

"Mazooma, for example, has a deep market and industry expertise around digital gaming payments," Williamson said. "So we wanted to bring a partner like Mazooma into the ecosystem so it could serve that part of the market that wants efficient gaming payments."

Other partners include Silicon Valley Bank, which specializes in small-business payments; Dwolla, for consumer account-to-account payments; Currencycloud, to enable conversions between currencies while staying on a merchant's checkout page; Railsbank, to embed Plaid's technology for open-banking payments; and Circle, to process cryptocurrency transactions.

The goal is to create a system that can serve the niches where consumers and businesses may not want to use a credit or debit card.

"We're working on a third way for consumers to move money," Williamson said. "They can still use a credit card and a debit card. But this is another option."

The increasing adoption of digital and mobile wallet payments will create more demand for simplified account to account payments that don't require extra navigation between sites or manual entry of card information, according to Williamson.

Digital and mobile wallet payments for e-commerce are expected to increase from 45% to 52% between 2020 and 2024, according to research from FIS/Worldpay. And at the point of sale, in-app and mobile wallet payments are expected to increase from 25% to 33%. By comparison, debit and credit card payments for e-commerce are expected to fall from 35% to 32% between 2020 and 2024, and stay steady for point of sale payments at about 44%.

"Consumers are going to be more mobile and app-focused and will want to be able to pay directly," Williamson said.

Many of the payments ecosystem partners already use Plaid's account aggregation service. Some of Plaid's ecosystem partners will resell Plaid's technology, while others will have a referral arrangement with Plaid.

More than 4,000 financial apps use Plaid's data tools, and Plaid is connected to more than 11,000 financial institutions in the U.S., with additional connections to banks in the U.K., the European Union and Canada. And Plaid reports 25% of U.S. adults are connected to a financial app via its technology.

Plaid's financial app partners include payment fintechs like Stripe and Venmo, investing apps like Acorn and challenger banks such as MoneyLion and Chime.

Plaid faces competition in data aggregation and embedded payments from Finicity, which is part of Mastercard; and Yodlee. Visa, which attempted to acquire Plaid in 2020, earlier in 2021 agreed to purchase Tink to expand the card network's open banking and embedded finance capabilities.

"Banks are coming to recognize that open banking is a two-way street, in that financial institutions can leverage the APIs and customer data from other providers in the same way that non-bank players can. This is accelerating the creation of new open banking use cases and projects in all regions," said Kiernan Hines, a senior analyst at Celent's banking practice.

For Plaid and other data aggregators such as Yodlee and Finicity, there's an ongoing competition to expand the ways they use the data they can access under open banking rules, Hines said.

"The key point is that open banking is about considerably more than account aggregation, as the ability to check a customer’s balance or confirm their account information can be used to enhance a wide range of different workflows, and payments are a particularly strong" example, Hines said.

Plaid's services have been controversial, since banks often aren't aware that Plaid is using consumers' credentials to access account information. Capital One in 2018 briefly blocked Plaid, leading to a dispute between the two companies. Visa agreed in 2020 to a $5.5 billion deal to acquire Plaid, a transaction that would have allowed Visa to more easily add digital services and support banks in its issuer network that were making deals with fintechs. That deal was called off in January under regulatory scrutiny, with the Department of Justice raising concerns that Visa was acquiring Plaid to remove a competitor.

Analysts and some Plaid executives earlier said the Visa deal's cancellation gave Plaid more maneuverability to build out financial services. Williamson did not link the payment ecosystem project to the Visa deal being cancelled.

The payment ecosystem has been under development for two years and includes work that predates the Visa deal, according to Williamson.

"You don't go and launch an ecosystem with 50 partners overnight," Williamson said. "I don't know what could or would have happened as part of Visa, because the Visa deal didn't happen."