Plaid - A $13Bn Banking Middleman
Plaid was on its way to get acquired by VISA for $5Bn, a bid that failed due to regulatory troubles, now $13Bn giant the company has found its groove and may go public in the coming quarters.
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Plaid co-founders Zach Perret and William Hockey started by building a financial planning app. However, the duo would quickly hit a roadblock common across fintech startups: developing custom integrations for each financial institution was a difficult and laborious task - planting the idea for an embedded financial product.
This roadblock sparked the idea to build an API to simplify the process of linking users’ bank accounts to fintech apps. Plaid tapped Venmo as an early user, the company wanted a more efficient way to connect Venmo to a user’s bank account to avoid delayed payments and additional risk for the peer-to-peer transfer company.
A successful partnership with Venmo meant other young Fintech startups like Robinhood, Acorns, and Coinbase were quick to follow Venmo and became Plaid users catapulting Plaid to become the standard for financial institution infrastructure.
Product
Before Plaid, there was Yodlee, a financial services aggregator, but Plaid’s Stripe-like pay-as-you-go pricing and easy-to-use documentation, compared to Yodlee’s annual fixed fee contracts and clunky documentation, got immediate traction with young fintechs like Venmo, Cash App, and Chime. Plaid’s core product is a screen scraper that asks customers for their login credentials, uses it to log into their bank account, scrapes the data, and puts it into a data layer for fintechs to query through APIs.
Plaid’s Product Offering can be divided into these five categories:
Onboarding: The most-used Plaid products that are core to onboarding a new user onto a fintech app, such as Auth for fetching customer’s account information, Identity to verify account ownership, and Balance to get real-time balance information.
Information: Getting historical data from different types of accounts such as savings, checking, investments, credit cards, loans, and mortgages.
Money movement: Moving money to and from customers’ bank accounts to the fintech app natively inside the app using payment initiation product and Transfer product to move money from one bank account to another through ACH.
Payroll: Income verification by connecting to payroll providers and switching direct deposits programmatically inside the app rather than through manual paperwork.
Fraud: Mitigating fraud in various Plaid workflows through document-based identity verification, KYC/AML compliance, and reducing the return risk of an ACH transaction.
Revenue
According to the estimates, Plaid made $250M in 2021, a 47% increase from 2020. Plaid’s revenue grew at a CAGR of 58% from 2017 to 2021. Plaid has two pricing plans, a pay-as-you-go with no monthly commitment and a custom plan with volume discount, premium support, and integration assistance. Plaid makes money from fintech apps in three ways: by charging a one-time fee when the apps use Plaid to connect to their customer’s bank account, a per-request fee for any transaction through Plaid such as moving money from a bank account to Venmo, and a monthly subscription fee. Most of Plaid’s revenue comes from per-request fees.
Secondary Market Performance
Plaid is a Tier-1 category of secondary market stocks, it was once trading at $911 in 2021 after its Series D funding round but has since slipped to $334 in June 2023. Currently valued at $13.4Bn, Plaid is backed by some of the biggest names in Venture - Coatue, Goldman Sachs, a16z, Kleiner Perkins, JP Morgan, and Amex Ventures, among others.
Visa was planning to acquire the company in 2020 for $5Bn, but the deal was blocked by the regulators since then, the company raised $425Mn+ Series D round, and the rumors are it is one of the companies that are gearing up for public market debut in 2023.
What’s Next?
Plaid recently launched a tool for Cash Flow Underwriting to make it easier for lenders to access real-time cash flow data, a new hosted experience for its flagship product Plaid Link. The company also announced an agreement with American Express, a data network that powers the digital financial ecosystem, for an API-based integration that will provide new digital banking options for customers while enhancing their account security.
Plaid also rolled out Identity Verification across apps and services, the company now enables consumers to verify their identity across all Plaid-powered apps and services. And previously mentioned IPO is also on the horizon, if not 2023, then 2024 will be the year because Plaid is already dominating the FinTech market, the company is well capitalized and well managed, a perfect candidate for a strong IPO.
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