Photo Credit: Jan Vašek from Pixabay

According to a recent report, the global FinTech-as-a-service market is projected to grow 17% CAGR to reach $681.6 billion by 2028. Financial institutions are looking to fintech-as-a-Service providers to help streamline their procedures. San Francisco-based Plaid is one such player that is trying to make digital financial tools simpler for both users and developers.

Plaid’s Offerings

Founded in 2013 by William Hockey and Zachary Perret, San Francisco-based Plaid is a technology platform that helps customers create a fully modern and digitally-enabled financial system. The FinTech unicorn is known for its APIs that connect consumer bank accounts to financial applications.

Plaid’s API offerings put it in between consumers and a slew of financial applications and services. Its solutions make it easier, and safer, for developers to create innovative financial services and applications. Through its applications, it is able to offer simplified consumer experiences, developer-friendly infrastructure and intelligence tools to provide everyone with the ability to build the future of financial services. It works as an authentication gateway and data provider for users and is not directly involved with the actual movement of funds.

Plaid has built an ecosystem that has over 12,000 financial institutions and 6,000 digital financial service partners powering many apps and services used to provide healthier financial options to consumers. Whether users are creating their budgets, or sending money to others, they are in need of a secure app. Plaid provides these users with access to apps and tools that connects the financial accounts of these users to the finance apps on its ecosystem, while ensuring that the connections are secure, and that users can control who they share their information with. Recently, Plaid announced a partnership with Wise that will provide customers with access to a storefront of apps without needing a bank account. The partnership works towards Plaid’s goal of secure universal data access and Wise’s “money without borders” mission.

Plaid is trying to build more services atop its connection hub. It recently launched a product called Signal that is aimed at reducing fraud. It has also built a consumer portal where end-users can check their various connection points. Analysts believe that if Plaid provides consumers with access to a central hub that they can use to connect to the larger web of FinTech and FinServe products, it could build relationships with a growing population of individuals. Access to that population would be a good monetization opportunity.

Plaid’s Cognito Acquisition

Recently, Plaid also announced its acquisition of Cognito for an estimated $250 million. Cognito offers ID verification and ensures that know-your-customer (KYC) rules are met to prevent illegal activities like money laundering. Till recently, Plaid was in the business of helping users connect their accounts with financial apps and conduct transactions. This acquisition takes it beyond that service and allows the combined team to integrate their platform with tools and data sources needed to automate identity verification, KYC, and AML screening to successfully reduce fraud. Cognito will help simplify Plaid’s processes for user verification, thus accelerating the process of onboarding of customers for FinTech players.

Prior to the acquisition, Cognito had raised $2.1 million in three rounds of funding from Y Combinator, Haystack, Lightspeed Venture Partners, Digital Currency Group, NAV.VC, Scott Robinson, Khosla Ventures, Battery Ventures, and Boost VC. Its most recent round was held in August 2014 when it raised $120,000.

Plaid’s Financials

Plaid does not charge the users for connecting their accounts to applications like Venmo or Digit. Instead, the app pays them a fee to enable the connection. Being privately held, the company does not disclose its financials.

It has raised $734.3 million in seven rounds of funding so far from Bedrock Capital, American Express Ventures, JP Morgan Chase, New Enterprise Associates, Silver Lake, Kleiner Perkins, Thrive Capital, Index Ventures, Spark Capital, and Altimeter Capital. Its most recent round was held in April 2021 where it raised $425 million at a valuation of $13.4 billion. In 2020, Plaid was almost acquired by Visa for an estimated $5.3 billion. But the deal hit regulatory snags, and fell through. Since then, Plaid has been focused on improving its market reach, and has clearly more than doubled its valuation.

There are several players in the fintech space trying to do what Plaid does. Its competitors include names like Yodlee, Galileo Financial Technologies, Akoya, and many more. Recently, Stripe also entered into the space with the launch of its product, Financial Connections. Stripe’s product is very similar to Plaid and it gives its customers a way to connect directly to their bank accounts, access financial data to accelerate certain transactions. Stripe is among the bigger players that Plaid will need to watch out for.

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