Plaid: an Unsung Hero Powering the Fintech App Layer

Continuing on the theme of fintech infrastructure that I began detailing last week with my post on Stripe, this week I’ll cover another key component powering many financial applications, Plaid.

Plaid in action

Plaid acts as middleware between bank data and consumer facing applications. Since just about all consumers still have their checking account at their traditional bank account, it is critical for any company sitting at the application layer to be able to communicate with each user’s bank seamlessly. In order to achieve this, Plaid leverages APIs to make this connection and helps provide services such as ACH and income and identity verification. Without a service like this, each startup building a fintech application would have to hire their own engineers to create their own way of regularly synching up their users’ bank accounts (and/or rely on the dreaded, slow as molasses trial deposit method!).

Today, Plaid works with more than 10,000 US and Canadian banks and is focused on expanding its reach into community banks and credit unions.
Impressively, it claims that 25% of residents in these two countries have used the service indirectly. On the consumer-facing side, it powers popular apps like Robinhood, Venmo, Coinbase, and Acorns.

About a month ago, Plaid announced it had acquired Quovo, which operated in much the same way as Plaid but focused more on investment and brokerage data, for $200 million. With this acquisition, it intends to expand into brokerage and wealth management and service Quovo’s old customers such as Betterment, Wealthfront, and SoFi. This is important because with this broadened focus, Plaid will be able to get a more holistic view of the customer in terms of their assets which is extremely important for lending use cases.

Plaid has had a massive impact on the fintech ecosystem and enabled the growth of many of the consumer-facing powerhouses that are becoming household names. This is a textbook example of how well-built infrastructure can enable the application layer to blossom.

Now, what happens when bank data becomes fully open, similar to what is happening in Europe due to its PSD2 directive? Next week, I’ll cover the challenges startups have faced on this front and what the future may hold.

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