FinTech Spotlight: A Conversation with Zach Perret, CEO, Plaid

Navigator Edition: November / December 2016

zach_-webWe recently spoke with Zach Perret about his company, Plaid, which builds financial technology infrastructure and APIs. Plaid is now the leading provider of financial data to non-bank FinTech startups. In this Q&A format we discuss the history of Plaid and best practices in building lasting partnerships between banks and FinTech startups.

Plaid was founded in 2012 by Zach Perret and William Hockey to address a simple problem: making innovation in financial services easier and more inclusive. After struggling to build a series of consumer budgeting tools, they realized that real progress wouldn’t be possible without improvement at the infrastructure level—so they resolved to build them.

Today, Plaid’s suite of APIs has helped to shape the future of financial services, enabling the development of the financial technology ecosystem by connecting consumers, their bank accounts, and third-party apps. Now thousands of developers and businesses—from stealth startups to Venmo and Robinhood—rely on Plaid to enable core functionalities that benefit tens of millions of people.

The company has grown to nearly 50 employees and has raised $60 million in funding from Goldman Sachs, NEA, Spark Capital, and others.

1. What unmet need or insight into the future of the market did you see that drove you to create Plaid?

My co-founder and I built Plaid because we were trying to build a card-linked consumer application, but we could not get the level of data access—or fidelity—we needed to bring it to market. So we started building the back-end, too. Eventually, we realized we were not alone in this frustration, and that focusing on the infrastructure layer might actually be more transformative. It was always our goal to help democratize financial services—which has become a cliché—but it struck us that unlocking the next wave of progress in financial services requires removing certain barriers to entry. With Plaid, instead of merely making it possible for consumers to live better financial lives with our budgeting app we realized we could make the entire ecosystem more inclusive to developers, consumers, and traditional institutions alike.

2. How is Plaid different from other financial API infrastructure providers?

Fundamentally, we are a technology company. We think like developers, or builders, because the majority of us are. This means we are looking to find the best technological and user-oriented answer to a given entrenched problem.

For example, the credit card industry has made tokenization the norm, which is fundamental to ensuring consumers are protected. But bank payments have no such equivalent—or expectation. That frankly shocked us. So in January, we were the first to bring tokenized ACH payments to market through a partnership we announced with Stripe. That helps to bring tokenization to the masses, by making it possible for any developer to utilize it.

3. Plaid works with both banks and FinTech startups. These two groups often operate in different ways, which can make partnerships challenging. What are some keys to success for FI-FinTech partnerships?

That push-pull between those partnerships is part of what makes them so worthwhile. Both parties agree that it is essential to build a secure, collaborative system that empowers consumers and enriches their choices. The tough part is figuring out how to do that, and to bring real progress to financial services—which is a shared priority—it is really important that both parties bring their expertise to the table. Often, there are challenges related to processes and others that can be solved through technology. It takes mutual understanding to get there because progress can only really come to financial services if everyone works together.

4. What do banks have to gain from partnering with Plaid and making their data available to third parties, some of whom might be viewed as competitors?

We are actually seeing an interesting dynamic begin to emerge. Rather than drawing customers away from banks, many FinTech businesses are in fact helping financial institutions become more entrenched. After all, these businesses rely on the existing bank accounts as the hub of their users’ financial lives (a connection Plaid facilitates). We did a study a few weeks ago and found that consumers are looking for banks to empower them in this way—and this plays into loyalty at their primary FI. For example, 80 percent of consumers expressed a preference for banks to help them manage their financial apps through something like a dashboard. More broadly, consumers are increasingly asking their banks to make it easier to connect to apps.

5. Are financial APIs a sustaining innovation or disruptive innovation? In other words, will APIs disrupt the financial services industry or just make the existing players more efficient?

Probably a little of both – innovation fundamentally helps the best ideas and services compete and rise to the top. APIs are not really anything new, but they have not historically been accessible or easy to use. As that has changed, there has been an explosion of innovation in the sector, not only among emerging startups, but also at established financial institutions themselves. It is a win for the whole ecosystem.

6. How do you expect Plaid’s product set and customer base to evolve in the next few years?

We’ve really only seen the first wave of progress get unlocked. As financial institutions continue to act as platforms, Plaid will continue to act as a core enabler of innovation across the ecosystem. Even in our few short years, we have seen new challenges arise, like the need for end-to-end tokenization. I expect to continue to find those universal problems—which are opportunities for improvement that trusted intermediaries like Plaid are uniquely positioned to solve. Ultimately, we hope this will bolster the healthy, competitive ecosystem that has started to take shape for the benefit of consumers and businesses everywhere. Finally, we are focused on the United States for now, but there are different challenges around the world, which we are likewise excited to begin addressing.

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