Table of Contents
- What is Plaid?
- How Does Plaid Work?
- Why does Plaid want to connect to my bank account?
- Plaid Business Model
- Is Plaid safe to Use?
- How Plaid maintains your privacy?
- How Does Plaid Make Money?
- How Secure is Plaid?
- Who is the Owner of Plaid?
- What is the Funding & Valuation of Plaid?
- What is the Revenue of Plaid?
- Success Story of Plaid
When you use your phone to purchase, request a loan, or invest, it was likely facilitated by Plaid.
Plaid’s work as an infrastructure product is primarily invisible, but it is no less critical than it enables.
Plaid has connected nearly two thousand financial applications (think Paypal, Robinhood, and Coinbase) to virtually every significant financial institution since its inception five years ago.
A simple API for consumer payments has expanded into a sophisticated platform that provides developers with tools for connecting banks and applications.
Data analysis shows that Plaid has earned the trust of banks and entrepreneurs by bridging the data gap between them.
Plaid’s current size will be discussed in this article and the strategy and regulations driving the company’s growth and future product expansion. In this article, we will focus on how does plaid makes money and the plaid business model.
What is Plaid?
Plaid is a fintech startup that functions as a go-between for your bank account and financial apps.
A Plaid-enabled application securely connects your bank accounts by taking the login credentials you provide, encrypting the requested financial data (such as an account balance), and sending it to the application.
Plaid makes money through several fees associated with connecting to and utilizing its service. The business is based on a freemium concept.
Plaid was founded in 2012 and has grown to become one of the most valuable FinTech businesses globally. It is currently worth $13.4 billion.
Plaid protects you by masking your login credentials and only sharing the information you choose to share.
Plaid allows you to securely connect your bank accounts to over 3,000 financial services while preserving security and control through the use of a secure API.
How Does Plaid Work?
Payment technology firm Plaid aims to connect your personal bank account with your financial applications.
Users must connect their bank accounts to platforms such as Acorns or Betterment to withdraw and deposit money and allow the app to analyze their financial accounts.
The problem is that each bank has its own complicated legacy system, requiring that app operators create connections for each of them.
Plaid’s solution to this issue involves providing an intermediary (API) layer for application developers. Several banks share a standard API, simplifying integration.
Customers consent to Plaid sharing their personal information, including their name, account number, account type (debit or credit, for example), and balance.
The information is then securely stored and protected by Paid using end-to-end encryption. The user can, however, limit the information provided by third-party apps.
The customer can use Plaid with no problems. The user selects the financial institution they wish to connect with and then enters their login credentials for that institution when registering for a Plaid-powered app.
Once the user has agreed to share data (such as an account number), Plaid encrypts the data and sends it encrypted to the third-party app. Plaid’s servers store this information, and it will never be viewed or received by the app.
Currently, Paid works with more than 11,500 financial institutions across North America and Europe.
Why does Plaid want to connect to my bank account?
Plaid provides a safe method of transferring financial data from your bank account to applications that require it.
With Plaid, you can access your bank information to extract data needed for your financial applications while safeguarding the information you provide.
When Plaid retrieves information about your account balance or account number, it uses encryption and security tokens to protect your basic account information.
Plaid Business Model
A significant strength of PLAID has been its adaptability to new applications. After initial success with payments, the company multiplied with payments to include a suite of new products, offering access and aggregation services from the get-go.
Banks and fintech firms will continue to compete for consumer money, resulting in new items and services that will expand Plaid’s market.
A plaid business model has been demonstrated before, based on data access and aggregation, but a simple business strategy is still waiting to be executed.
Analytics tools are not new to enterprise organizations deployed for years (e.g., Stripe). Plaid stands out due to the massive volume of financial data it can translate and the ability to target consumers.
Plaid’s control over data flow can be used to empower individuals who use the apps for which it licenses. Plaid has been ordained as the entity to provide meaning to data if that is the current ethos of consumers.
Is Plaid safe to Use?
Many people are reluctant to let their bank accounts be accessed, which is understandable. Understandably, you would be unwilling to divulge information about your account when an application requests it. You can, however, remain confident when Plaid inquires.
How Plaid maintains your privacy?
The Plaid platform allows you to manage every aspect of your personal information. Plaid can supply a variety of services to applications, including:
- Account and routing numbers
- Balances
- Transactions
- Investment holdings
- Credit card balance and interest rates
- Student loans
- Account profile information
According to Paid’s privacy policy, your information will never be sold or rented, and it will only be shared with the companies you have allowed to access it.
How Does Plaid Make Money?
Plaid makes money by charging clients various fees for accessing and using its services.
Paid uses a freemium business model, which means its primary product is free.
The platform allows companies to connect to up to 100 financial institutions and access their transactions (view detailed transaction histories), authenticate their users (give access to their accounts), and monitor their accounts (view balances in real-time).
Users who choose paid services will be charged different prices depending on what product they use.
Plaid charges a one-time fee when a new user account is connected to the API. Subscription fees apply to all transactions assisted (e.g., making payments).
Furthermore, businesses have to pay each time they use the API to look up data about a user’s account.
A product developed by Paid is designed to have all of these qualities to be more competitively positioned in the future.
European banks already have an adequate regulatory framework in place, which significantly hampers expansion.
Moreover, the United States does not have any frameworks in place. Thus, banks develop their own standards and infrastructure. It is desirable to a certain extent.
A complex system reduces the likelihood of upstarts (like Neobanks like Chime) succeeding.
The largest banks might also agree to agree on a uniform standard by forming a coalition. A similar shift has taken place in the peer-to-peer payment market.
Venmo began expanding its use and influence in the US in 2014, so banks and institutions formed the Zelle payment network to counter it.
Zelle quickly surpassed Venmo and Square in terms of payment volume — and is currently the clear leader in the space.
However, it should be noted that there is no indication that this will happen in the arena in which Plaid operates.
Plaid has inked numerous collaboration deals with US banks during the last few years, giving them unique access to their datasets.
How Secure is Plaid?
It is still possible for security concerns to arise even if a corporation promises to keep your financial data confidential. How secure are your data against a cyber attack or a data breach?
Plaid takes precautions to protect your data from any malicious attempts to access, steal, or access it.
The security of Plaid is based on the following:
- Encrypt all data from all parties involved in a transaction, including banks, applications, and customers. Any data stored is encrypted using the Advanced Encryption Standard (AES), and any data in transit is encrypted using Transport Layer Security (TLS).
- Plaid leverages cloud architecture created with security in mind, leveraging decades-old security technologies to deliver the most flexible and responsive protection possible.
- MFA safeguards your identity and logins and prevents unauthorized access to your account.
- You can receive immediate assistance for any potential problems through our 24/7 monitoring.
- The Plaid Group uses independent security testing, as do other respectable IT companies. The platform’s security is ensured through third-party testing and a bug bounty program.
The advantages of Plaid include greater control over finance without compromising on safety.
Who is the Owner of Plaid?
ZachPerret owns roughly 13% of Plaid, according to Forbes. William Hockey, however, owns about 12% of the company.
Spark Capital will own a sizable share due to its role as lead investor in both the seed and Series A rounds.
What is the Funding & Valuation of Plaid?
Plaid has raised $734.3 million in venture capital funding over five rounds.
Major investors are Goldman Sachs, Thrive Capital, Kleiner Perkins, Silver Lake, Ribbit Capital, and New Enterprise Associates.
Paid’s latest Series D fundraising round in April of 2021 resulted in a valuation of $13.4 billion.
What is the Revenue of Plaid?
Plaid earned approximately $170 million in revenue in the fiscal year 2020. (As reported by Forbes). The company’s bottom line grew by over 60% during that year.
Success Story of Plaid
Plaid was started in 2012 by Zachary Perret (CEO) and William Hockey in San Francisco, California.
Bain & Associates, the largest consultancy on the planet, is where the founders met as interns.
They began experimenting with other company ideas they could explore following their instant connection.
They developed a financial management and suggestion tool for consumers first. In the end, the project proved to be far more complex than expected.
The development of individual connectors for each bank was necessary to connect to users’ banking accounts.
Many prospective banking partners were still using 1950s-era technologies (such as COBOL) to complicate the issue.
When they realized they weren’t alone in their struggle with that issue, their light bulb moment occurred.
Plaid, which began development in 2012, is built on the backend API they developed to interact with these institutions.
Perret and Hockey were both based in New York at the time. They used to sleep on a friend’s sofa (Hockey) or move in with their girlfriend (Perret) because city living was expensive.
Several months later, they achieved their first breakthrough. Venmo, a peer-to-peer payments app, was gaining traction and rapidly expanding its user base at the time.
The team, unfortunately, ran into a roadblock that prevented them from progressing any further.
Venmo transactions require the company to provide the cash, increasing their risk as their company grows.
The company was planning to settle transactions in bulk, delaying payments for at least a day.
Paid’s approach would enable Venmo to interact with its banks in real-time, eliminating the sender’s chance of missing enough bank funds.
Venmo ended up using Plaid for its backend infrastructure, which allowed the company to grow and become the market leader today (Venmo uses Plaid to this day, for instance).
Venmo’s success would quickly attract more clients.
Additionally, they won the TechCrunch New York Disrupt award (you can see a video of their presentation below), making them more visible.
With their growing consumer base, Paid was eventually able to raise their first round of funding. This company received $2.8 million from Spark Capital and several other investors in September 2013.
Paid relocated its headquarters to San Francisco, gaining access to a significantly larger pool of FinTech firms and software developers prepared to become clients.
Plaid remained entirely out of the public limelight for the next three years, focusing primarily on refining its product and recruiting new clients.
The company announced a $44 million funding round in June 2016, sponsored by Goldman Sachs (Citi Group and American Express).
The project quickly encountered several problems. Plaid’s biggest competitor, Yodlee (acquired by Envestnet in 2015 for about $600 million), filed a lawsuit alleging that Plaid infringed one of its patents.
Plaid ultimately reached an agreement with Yodlee to license all of the 78 patents issued by Yodlee in February 2017.
Even so, the lawsuit barely affected the company’s growth trajectory. Plaid has a customer base of almost 10,000 banks and FinTechs as of the end of 2017.
The bank side of the company has clients such as Wells Fargo, Citi, and Chase, while the fintech side has clients such as Robinhood or Wealthfront.
Plaid began diversifying into other finance-related areas in 2018. Assets, which lets lenders integrate Plaid directly into their applications, was released in April.
Plaid nearly doubled its customer base in 2018 when it entered Canada, its first foreign market.
The company concluded the year by raising $250 million at a market value of $2.65 billion. Plaid is now part of the unicorn club less than five years after it was founded.
They used those funds to a significant effect right away.
Plaid bought Quovo (a competitor specializing in investment-related firms) in January 2019 for $200 million, Bloomberg reported (In July, it rebranded the product as Investments, embedded into the Plaid ecosystem).
Plaid moved into the United Kingdom a few months later by establishing an office in London in May. Six months after that, Ireland, France, Spain, and the Netherlands also joined. However, Europe is a far more difficult market to break into.
The US banking industry creates and operates its own infrastructure, whereas the European Parliament began a uniform standard for all banks (called PSD2/Open Banking) in 2015.
Further, each country has its own set of rules regarding the types of information that may be accessed and handled.
So rather than a single Plaid for all of Europe, there are various small plaids for multiple countries.
The expansion was to take place without William Hockey’s assistance, however. A second co-founder, who served as the chief technology officer, is expected to step down in June 2019.
Venture capital-backed entrepreneurial firms are not uncommon to experience such shifts. It is not unusual for founders to prefer rapid construction over gradual, large-scale developments. According to a statement emailed to TechCrunch:
The decision was neither hasty nor recent, he wrote. “I knew there would be a time in the next couple of years when I would transition to a purely advisory and strategic role.”
Plaid, the company founded by our father, died in February of this year, leaving Plaid’s employees without a leader who stood by them whenever they faced challenges.
Several other financial incumbents purchased FinTech firms at the same time. PayPal invested $4 billion in coupon extension Honey, while Intuit spent $7.7 billion on Credit Karma.
However, if you believe they lived happily ever after, I have some bad news for you. The U.K. regulators expressed concern in June 2020 that a merger between Plaid and Visa would further bolster Visa’s market dominance (its share in the U.K. is 82 percent, according to Statista).
The United Kingdom authorized the merger in August 2020, whereas the United States did not. The US Justice Department stated two months later, in October, that the combination would raise substantial antitrust issues.
A few months later, it filed a lawsuit against Visa alleging that it was a “monopolist in online debit transactions.” One year after the deal was announced, Visa formally ended it.
Plaid, interestingly, was not concerned that the deal would not go through. The firm grew by more than 60% due to increased visibility. It increased interest in its investment apps, Robinhood (due to its purchase and subsequent stimulation checks) (equivalent to 4,000 new customers).
Paid continued to concentrate on product development and cultivate relationships with its existing banking and other clients, as it did in previous years. Plaid raised $425 million to fund its expansion efforts at a valuation of $13.4 billion (more than twice what Visa agreed to pay).
Paid plans to go public someday, either through a regular IPO or a SPAC. The exact date of the event is not yet known.
There are currently about 1,000 employees operating offices in the United States, United Kingdom, and the Netherlands.
