Plaid made its mark by smoothly connecting financial services apps with users' bank and credit card accounts, and now it's extending that action to payments.
Since hiring Meta veteran John Anderson as its first head of payments last year, Plaid has begun rolling out products that aim to create a streamlined, faster payments experience even when the faster rails aren't yet fully deployed.
The first product was Signal, which launched quietly in November 2022, providing a risk score for ACH payments sent to companies like online investment firm Robinhood and digital-goods firm Uphold, when certainty of funds availability is critical for quick settlement of transactions and ACH returns are costly.
The next product, which Plaid is announcing today, is Instant Payouts, a service available through its Plaid Transfer product that enables a consistent end-user experience for use cases like instant wage access products that use a mixture of faster and slower payment rails.
Both products–and others that Plaid has in the pipeline–exploit the San Francisco company's vast trove of consumer data and machine-learning tools to streamline transfers over an expanding patchwork of different payment rails operating at different speeds.
By providing such assists, Plaid hopes to entrench itself more deeply in the financial ecosystem.
"Faster payments using new rails are coming, and just like we provided account-connectivity for fintechs and banks, we want to provide tools that will help our customers use those rails with more intelligence," Anderson said.
Plaid's move could solve emerging problems around ACH usage as the U.S. gradually shifts to faster payments over the next few years, with ACH continuing to shoulder the bulk of payments even as FedNow goes live in July, said Mitch Wein, head of community banking at Aite-Novarica.
"The ACH payment rail will continue to be widely used for at least the next 10 years, but ACH transactions are never fully guaranteed to go through, due to return risk," Wein said.
ACH returns happen when there is a dispute about whether the sender has funds in an account at the time of the ACH transaction's execution, which creates friction and costs that are anathema to embedded-finance providers, Wein said.
"ACH, an old batch technology subject to return risk, is ubiquitous as a payment method in the U.S. and Signal is Plaid's way of removing some of the friction and applying risk analytics using thousands of factors to determine the likelihood of return risk and other insights–it's essentially an ACH-workaround," he said.
In the case of Instant Transfer, Plaid is addressing a faster payments gap that's already emerged, according to Anderson. The Clearing House's RTP network is only available for about 70% of U.S. bank accounts, making it difficult to deliver a consistent experience for new products riding RTP's rails. Instant Transfer ascertains whether an account is RTP-eligible. If not, Plaid seamlessly delivers the funds via same-day ACH with no action needed by the payer or payee. Unlike some competing services, there is no fee for the immediate access to wages.
MyBrandForce, a consumer brand-management firm that sends agents to work inside retail stores promoting specific brands and products, has tested Instant Payouts to deliver workers' wages in real time. When a MyBrandForce worker links their bank account to the company's platform, Plaid's Instant Transfer automatically routes the payment via RTP or ACH as soon as the worker's shift ends.
Demand for Signal has been stronger than expected, as embedded finance use cases expand where funds move fast and there is no room for failure, Anderson said.
"Companies that are rapidly funding investment accounts or making funds from loans available immediately need to be absolutely sure that ACH transfers are solid, so we give them a score they can trust," he said.
A large prepaid card provider whose name Plaid didn't disclose, saw a sharp decline in return rates when they added Signal, which reduced operations costs without slowing the pace of approving transactions, he said.
Signal also works to reduce "false positives" surrounding ACH transactions in the current high-fraud atmosphere, where companies operating at higher speeds err more often on the side of caution and turn away customers whose funds are good, according to Anderson.
"Signal gives companies confidence that ACH transactions are good so they can accelerate the movement of funds into embedded-finance actions without the fear of fraud causing them to lose a transaction or a customer," Anderson said.
Faster settlement windows for ACH transactions also reduce fraud, according to Anderson, though it's difficult to quantify that effect.
"By helping money move faster and more safely, it reduces the opportunity for fraudsters to get in there. We have all the tools, including identity verification service, to assess that the person making the ACH transaction is the same person attached to the account being billed," Anderson said.
