New technology is changing the banking world one transaction at a time. Fintech or financial technology is giving more opportunities to change the way consumers interact with their money. The new landscape has created a movement called open banking, which is fighting for banks and fintech companies to be a bit more transparent with their customers. Plaid is one of the fintech unicorns leading this movement by changing the way that banks communicate with fintech companies. It gives consumers complete access to all of their financial data at their fingertips. The interesting key to this new era, though, is that we are seeing players who are operating to create new infrastructure that will be relevant in the world of banking and big data and artificial intelligence as we go forward. And one of those examples is Plaid. Traditional banking offered less freedom and control for consumers over their financial decisions. Open banking gives consumers more reign over their finances and ups transparency between their interactions. The goal of open banking is to put power into the consumer’s hands by enabling them to understand information about their bank accounts with third party sources. The movement is growing with companies like Plaid at the helm. And the Fintech company is everywhere. We’ve integrated with every bank in the US and now most of the banks in Canada and many in the UK. And those integrations allow us to collect data or take action on their behalf. With all of these companies gathering your financial information for their own purposes. Who actually owns your banking data? The release of the iPhone in 2007 put an incredible amount of computing power and network connectivity in the pockets of the masses. This new technology created the ability to streamline many banking services. But the banks themselves were slow to catch on. Startups like Venmo, on the other hand, were not. Two young roommate programmers created the sleek money transfer app in 2009 after asking the simple question why couldn’t they pay each other back for a weekend trip on their phones? Those years after the financial crisis saw a proliferation of financial services and tech companies, which came to be called fintech. The space is a big one, loosely enveloping any tech company with a financial services flair. From crowdfunding sites like Kickstarter and Patreon to firms doing high frequency stock trading and more. Seeing the success of these startups, big banks have begun jumping into this space as well. Today, the fintech industry is worth about $127 billion dollars, but is expected to more than double in size to 309 billion by 2022, according to PR Newswire. And investors are taking notice. There are now 58 fintech unicorns collectively worth more than $500 billion dollars. And one of the companies powering this growth is Plaid. If you use Venmo, Robinhood or pretty much any other modern finance app, you’ve also used a company called Plaid. We sat down with Zach Perret, a co-founder and CEO of Plaid at the company’s San Francisco offices. We’ve always had this this kind of mantra of making money easier for consumers. We want to make money easier for everyone. We found that we need to go one layer deeper, build the infrastructure that’s not behind these applications. And so this infrastructure is basically the connectivity between your bank account and an application on the web. We are going to need new infrastructure players and we see people who are building these pipes today. So Plaid is an example of someone who is building pipes that are connecting the bank account information to potential new solutions that could be transformative. Through Plaid’s, application programming interface or API, the company can do a lot of the heavy lifting on the back end for someone who wants to make an app without a third party like Plaid, startups would have to hire their own engineers and create their own ways to sync with banks, which needs to be adjusted based on different laws and regulations of various countries. Plaid also adds analysis on top of the bank account. So app users are able to do things like budgeting or expense management. It can authenticate bank accounts for direct payroll deposits and electronic bill payments, verify someone’s identity, verify someone’s balance in real time, and understand income and employment. Plaid has now become basically the leader in the space to enable this connection into the bank account. They’ve made it very, very easy for developers to adopt. We’ve integrated with every bank in the US and now most of the banks in Canada and many in the UK. And those integrations allow us to collect data or take action on your behalf. My co-founder William and I both started our careers working at Bain and we’ve had technical backgrounds before that and spent a couple years or a year about inside this consulting firm. And interestingly, a lot of the projects that I was assigned to you and then he was assigned to you, we’re focused on, hey, can you go help the bank think about their infrastructure? And so through that, we actually got kind of a first hand view of the technology that existed at banks. And we realized that most financial services is actually powered by paper processes. In those early days, we had built a series of consumer products and they’ve been limited by the lack of the lack of kind of infrastructure that we’ve built now. They had actually experienced the problem firsthand, so they started out actually building a financial technology app direct-to-consumer. It was to help them track expenses, track spending, things like that. And they ran into the problem firsthand that they couldn’t connect to bank infrastructure. We went to Hackathon at a TechCrunch Disrupt Hackathon and we just built a product on top of our infrastructure and kind of watch it. And it ended up winning the Hackathon. And we had a ton of people coming to you and say, hey, can I use the back end of that application you built or can I kind of license your infrastructure to go build X, Y, Z? They made it big with our first customer, Venmo, which was not a household name at the time. That app now owned by PayPal, has 40 million accounts in the US. They had a pretty massive interchange fee and Venmo wanted to switch their model to running on ACH trails. So direct bank transfers, which have a much lower fee. And they couldn’t get consumers to actually link their accounts because it was too arduous, too difficult. It was a process where you had to type in your account number, your routing number, you had to wait three or four days, go log into your online banking or look at your bank statement type 2 and 4 cents. They did this trial deposit verification. It didn’t work at all and no one would do it on mobile device. And so they came to us and said, hey, can you do this quickly and easily? And we, of course, had this this instant on-boarding process, which they started using. We grow as the first derivative of the fintech market. We’re fortunate to have almost everything tech company that’s built on top of that. But as the ecosystem grows, so do we. They also partner with banks. Plaids said it integrates with a quarter of U.S. bank accounts. The company has attracted investments from the venture arms of Goldman Sachs, Citi and American Express. And Mary Meeker, infamous venture capitalist and former Wall Street analyst, announced that she was joining Plaid’s Board in twenty eighteen. Increasingly, we’re seeing this sense of the banks becoming fintech. J.P. Morgan a while ago said that they’re actually the largest fintech company, that they think of themselves as a technology company. And despite the fact that they still have a lot of evolution to do, I’d say that many of the biggest banks are now starting to lean pretty heavily into into becoming technology companies and fintech companies themselves. Fintech is changing the banking landscape by offering consumers more access and therefore more control over their financial data. So, for example, many of our lending customers use Plaid to help understand a consumer’s complete picture of their finances as they’re applying for a loan. So if I go to a bank and I want to apply for a mortgage, the bank can easily link the accounts that I have with them. But maybe you have a stock investment account, maybe you have another checking account. Maybe I get get funds from another place. How can I link all these accounts together, create a financial picture and then use that to apply for the mortgage without having to come in with my 40 pages of documentation? The old model of connecting a bank or transaction account by using a routing and ABN number and an account number, these are not things that are just lying around. Whereas sort of your log into your bank is in your head most of the time. And fintech is growing. Even the players that we see who are looking at creating these new dashboards, we’ve got a list of, you know, probably more than 20 now, which probably means there are about 200 of them out there. As we change our definition of fintech to not just include those small startups, you know, coming out of accelerators or being v.c funded, we’re now starting to include lots of things that are a step beyond just just kind of these tech companies. So the banks themselves, or many companies that have never thought of themselves as a technology company or fintech company, but actually need to do fintech things. One of my favorite examples is that we’ve actually seen a number of car dealerships come to us saying, hey, I I need to make car loans or I need to get my my customers car loans. And I’d like to do it on the lot. And I hear that fintech is one way that I could do that. So you’ve actually seen an increasing number of car dealerships themselves who are not fintech companies at all launching fintech products. We’re seeing this increasing growth of fintech being everywhere. Every company being fintech company. Over 80 percent of all of the biggest fintech companies now are customers of Plaid. So at this point, you’re almost making a mistake not to pick Plaid as your infrastructure. No other company seems to be tackling the same problem as Plaid with much success. In fact, Plaid bought its biggest competitor Quovo in twenty eighteen. Startups don’t often do M&A, but we’re incredibly fortunate to have found this company that with such a great fit with Plaid. Quovo had built a very similar but different type of product. So Plaid, we’ve focused on enabling you to interact with your banking data or move money in your checking and savings accounts really easily and simply and Quovo had built a similar type of product focused on brokerage accounts. So how could you get a full picture of your brokerage data, understand how your stocks were doing and so forth. So it was two different pieces of infrastructure but related and now we’re really fortunate to have brought them together. So we’ve we now are able to offer a view of the entire consumer’s financial life, such that if you’re trying to do something, you can go to one service. Banks and private companies will always try to innovate to provide better opportunities for their customers. Plaid creates an environment on the back end for consumer facing companies to innovate their services without having to invest a whole lot into the infrastructure. Few organizations can compete on their level. And the company has expanded to the UK with global ambitions. The UK in particular are way ahead of us in adopting the rules and regulations necessary to have the data infrastructure that we truly are going to need for the next decade of fintech. In Europe and the UK, we have the established rule that the customer owns their data and can permission it through protocols that are designated to other regulated entities. And what happens in Europe and the UK under open banking is that the liability for that data safety transfers as it goes from one regulated entity to the next. So in the U.S. we are now operating without this structure, which is really difficult and not appropriate. The regulatory environment is completely different in Europe. It is a little bit more forward-leaning around consumer ownership and access to data. Plaid, one of our foundational beliefs is that consumers own their financial data and they should be able to do with it what they want to do. And in Europe, the laws are quite clear, saying that consumers have access to an ownership of all their financial data and actually they stipulate how that data can be shared, which is great. So it’s really forward-leaning there. We still have a long way to go in terms of challenges that communicating across a nation is no easy feat. When you have a company like Plaid and it takes your data with your permission and uploads it to some other entity. It is now governed by a whole series of murky rules which are overlapping and sometimes conflicting, involving third parties and also involving data ownership. We don’t have clarity in the U.S. about who owns the data. And importantly, we don’t have clarity about when the liability for the security of that data transfers from one entity to the next. The UK’s Payment Services Directive, which is termed informally as open banking. This is where consumers have access to all their data brokerage banking but they get to control. It’s a way to have better data security and more consumer security. It’s been required now of the major banks in the UK. The UK has one of the most robust fintech ecosystems in the world. Many say that’s thanks to open banking laws that make it easier for fintech companies to compete. Those require banks to standardize customer data and make it easier to export in the same format. UK single biggest trading partner is the United States and the two countries have some of the most prominent economies in the world. I think it’s like something like seven or eight fintech unicorns have been launched into the UK. And so as we look at that market, we just knew we needed to go be there. We knew we wanted to go learn from the ecosystem and to see the different and fascinating ways that a lot of these companies were being built. British companies like Revolut and TransferWise are fintech goldmines in the UK. Revolut alone touts 8 million users taking on banks like JP Morgan and HSBC. Despite competition abroad and regulatory changes, Perret says open banking isn’t a threat to their business. Open banking in Europe is a set of regulations that enforce that banks have API and ways to share consumer data when the consumer requested that it is shared. And in the U.S., we have a similar set of principles. However, we don’t have stipulations around those APIs existing. The reality is though, that in the UK there are far less banks and so it’s much easier to ask all of those banks to go and build APIs. As in the U.S., there are more than 10,000 banks and credit unions and community banks, and asking all them to go until the APIs is immensely difficult. Not to mention the fact that many of the banks don’t actually have their own in-house technology teams, so they have to go out and pay consultants to build all that stuff on top of it. So the practicality of it coming here is quite low. However, the principle, the idea that consumers had access there and data that is foundational and that’s actually reflected on both sides of the ocean. The open banking revolution is just starting in the U.S. It remains to be seen if American politicians will work to foster through government regulation or promote private companies like Plaid and their mission to help consumers better understand and own their financial data. In the U.S., it seems like each individual bank, investment group, credit union, etc. owns a portion of consumers financial data along with the consumer. But no one group owns the consumer’s complete picture of their financial data. While Perret doesn’t see open banking regulations coming to the US anytime soon, it’s clear with applications like Plaid that consumers will have a bit more control over their financial data.