One in every four consumers in the U.S. has touched this product. Some of them do so when they register their bank account credentials to their Venmo accounts, or set up an investment account with Robinhood, savings account with Acorns or loan repayment details with LendingClub.
That product is Plaid — a tech platform that uses application program interfaces (APIs) to securely connect a consumer’s bank account to a third-party that wishes to use the account to enable a financial services transaction. It’s invisible to the consumer, but is the very visible spark that has ignited many third-party financial services platforms: Venmo, Acorns, Robinhood and LendingClub, for example. Plaid has integrated with 10,000 banks in the U.S. and Canada.
On Tuesday (Dec. 11), Plaid announced $250 million in venture capital funding, bringing the total amount raised to date to $310 million, with a valuation of $2.65 billion. This Series C round was led by venture capitalist Mary Meeker, with participation from Andreessen Horowitz, Index Ventures and Plaid’s previous investors Goldman Sachs, NEA and Spark Capital.
“We've been really fortunate to have incredible growth in the FinTech ecosystem, and have been a key partner in driving that,” said Plaid CEO Zach Perret, according to CNBC.
Partner Mark Goldberg, who led this round from Index Ventures, told Karen Webster shortly after the news was announced that he believes “we’re still only seeing the early phases of Plaid’s growth, because however the financial services market grows going forward, as long as it grows, Plaid will have work to do.”
From where he is sitting, growth in financial technology (FinTech), and FinTech-based services, is almost assured.
“We are in inning one of a transformation. I think if you roll the clock forward five or 10 years, you will see financial technology companies building point solutions for all kinds of services. The idea that a main-street bank will be the provider for everything is just outdated,” he said.
The Trust Business
Trust is everything in financial services, Goldberg told Webster, and among the things that drew Index Ventures to Plaid was both its strong security technology and its overall attitude about the primacy of keeping consumer financial data safe and private. There are many “shady data aggregators” in the world, and trust is absolutely critical in moving customers' most-sensitive information, like banking data.
Consumers also trust banks — and they trust them to do what banks have historically done extremely well: hold and protect consumers' money. However, what banks can’t do (and shouldn’t be expected to do) is invent every possible service a consumer or business could want. It’s not realistic when one is looking at the pace at which financial services — particularly niche services — are developing; banks aren’t well-served when trying to be competitors on infinite opening fronts.
“But we are seeing increasing consumer demand for all of these front-end use cases offered by third parties, and banks don’t want to disappoint their customers by leaving them unable to connect. That creates an interesting dynamic between Plaid and the banks,” Goldberg said.
Whereas Plaid might once have been seen as a threat that was making it easy for customers to be drawn away, Goldberg noted, the company is now offering more of an opportunity for banks to keep their customers by being good collaborators in the digital financial ecosystem.
He also noted that the digital financial ecosystem is growing on all kinds of fronts, and in places that are unexpected to most. Though it's still mostly unknown what exactly that growth will look like, all growth is — in some ways — good news for Plaid.
“If any particular area of FinTech gets hot, they're going to need a connector account,” Goldberg said. “Where those next generation apps are coming from, they are indifferent.”
As long as the broader financial services ecosystem grows, Plaid will grow.
For Plaid, he noted, the options going forward are endless. Given the amount of access it has to consumer financials (and the trust relationship it is working to build), there is a possible future where it can leverage those things to build a consumer-facing part of its app that can be used to discover financial services. That would be a good housekeeping seal of approval, as ideas and innovations proliferate across the financial services ecosystem.
It is not, he added, on or even near the firm's to-do list today — but, as the world is growing, anything is possible.
Growing it is, Goldberg noted, and in a variety of directions all at once. He told Webster that when he looks at investments, he’s particularly drawn to segments where that big jump into digital innovation hasn’t quite succeeded. Fleet management firm Keep Truckin, for example — there is a host of massive industries that people don’t often think of that are “running their 21st century businesses on Excel spreadsheets.”
Goldberg explained, “You get off the coast and open your eyes to this massive problem. There are trillion-dollar industries that are managed on pen and paper, and if you can move them into the 21st century, you can unlock a lot of things.”