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Plaid is the technology platform, founded in 2012 by William Hockey and Zach Perret with headquarters based in San Fransico, providing the tools and access needed for the development of a fully digitally-enabled financial ecosystem. It might be considered as a “data plumbing” system, allowing a seamless shift of large sets of interconnected and enhanced (with the categorization models provided by Plaid) information. Plaid makes it easier and safer for developers — from the smallest startups to the largest financial institutions — to build innovative financial services and applications. Plaid offers beautiful consumer experiences, developer-friendly infrastructure, and intelligence tools that give everyone the ability to build the future of financial services.
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Plaid was originally intended to be personal financial management and tracking tool for consumers, previously operating under the name "Sliver" and then "Rambler". But the company faced two fundamental problems doing that. First is that the application didn’t jive with the way that consumers wanted to be treated failing consumer psychology. Secondly, it confronted with difficulties in connecting bank accounts required for these tools as most financial institutions didn’t use a standardized way of transitioning data and had little presence in a digital world. Founders eventually learned that building an infrastructure layer is a better way to achieve their goal to make money simpler, financial data more interactive, and streamline different processes an emerging market of non-bank applications required to be connected with consumers’ primary bank accounts. Rambler is long gone but its underlying technology has since become a household name among fintech developers.
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That technology, Plaid's API, has attracted many investments. Plaid has raised a total of $310 million. The company raised $60 million in Seed, Series A and Series B funding from Spark Capital, Google Ventures, New Enterprise Associates, Goldman Sachs, American Express, and Citibank. On December 11, 2018, they announced a $250 million Series C round with a valuation of $2.65 billion. The funding round was led by Mary Meeker, with Andreessen Horowitz and Index Ventures also joining as new investors. Former backers Goldman Sachs, NEA, and Spark Capital also participated.
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Plaid plays a significant role in the paradigm shift from the stage when a consumer had a single primary bank to govern the majority of financial interactions to modern reality where consumers perform most of the interactions online and the reliance on non-bank financial applications is increasing. The main financial problem that Plaid is trying to solve is an old-fashioned, stagnant way of communication between the end-user, a fintech bank branch or non-bank application, and their banking accounts.
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Plaid also adds analysis on top of the bank account so an enriched data allows various apps users to do things like budgeting or expense management. And more importantly this high-context data might be an immensely helpful asset for building a debt repaying plan or risk modeling 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. Going over all this data Plaid also creates financial profiles of its end-users (which are compared to each other for a successful categorization) adding an additional security layer against fraudulent transactions. This is made possible with Plaid Link which is a drop-in module (or a widget) that handles credential validation, multi-factor authentication, and error handling for each institution that Plaid supports - all while keeping credentials from ever hitting application server. It prevents data from unnecessary spread and potential leakage. All developers that want to produce actual value have to get reviewed and approved accordingly to the Plaid’s compliance code. This is exactly what makes Plaid different from its competitors in the domain such as Finicity or other data transition and analyze aggregators.
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Plaid faced many barriers at first establishing a connection to the customers’ bank account and then maintain the support of the integrations. From an operational perspective, that requires Plaid to monitor over 10 thousand external dependencies on top of their own infrastructure. Plaids’ primary monitoring challenge lies in the combination of integration count with the heterogeneity of the integrations monitored. The financial institutions with which Plaid integrates range from the largest banks in the United States to small, regional credit unions. In practice, this means that similar metrics have different meanings across integrations. An engineering stack used consists of AWS, React, Logstash, Kibana, language-wise most of the backend is written in Go, some of the bank integrations are written in TypeScript. They also offer Android, iOS, and Web SDK (which are written in Objective-C and JavaScript). Today their uptime stays nearly 99% given that they have no control over the banks’ uptime.
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Progress toward data sharing has differed by region depending on market structures, regulatory environments, and consumer attitudes toward privacy and security. Varied interpretations of the word open from both industry firms and consumers are also shaping approaches to this new model. Use cases range from new interfaces for financial data, alternative underwriting and lending, facilitating new payments streams, and the opening of ecosystems. Segmentation will be essential. While there will certainly be a demand for “autopilot” type solutions executing tasks in the background without consumer interruption, this model is not being imposed across the board. Some consumers demand greater control and transparency over the process. The most important metric for success remains customer trust. Plaid, by its design and nature, doesn’t have direct rivals as the common vector in fintech “open banking” industry is to partner, enabling the developer market to evolve and cover more institutions. The market in the United States is way more diverse rather than in Europe with PSD2 regulating consumer protection and the rights and obligations for payment providers and users. The implementation of such a ruling directive is unlikely possible in the US considering the much larger number of financial institutions.
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The clients that use Plaid’s infrastructure tools are more than ten thousand banks across Canada and the United States (they’re now expanding to Europe but not fully functional yet) as well as thousands of non-bank application developers. Those are tech companies like Coinbase, Circle, and Blend. Investing applications like Robinhood and Acorns. Enterprise companies Plaid offers its service to are PayPal, Square, and Microsoft. Company co-founder and CTO, William Hockey, says that Plaid helps process data coming from roughly 20 million connected end-user accounts. While it does not give specific numbers or a full list of companies, Plaid said its customer base doubled from 2017 to 2018.
- It is crucially important to make end-user comfortable with an idea of sharing banking account information over the Internet. Plaid developers might want to emphasize and invest in education of public in the context of mutually beneficial API technology, probable risks and security system, and also common bottlenecks.