Plaid is moving into identity verification in a crucial expansion beyond its roots connecting banks and fintechs — a move that could put it in more direct competition with Stripe, another company known for its financial software tools.
In conjunction with its Plaid Forum customer conference this week, the company is also announcing two products focused on ACH transfers as it moves into payments.
Plaid, which has been expanding since a planned takeover by Visa fell apart last year over antitrust concerns and was recently valued at $13.4 billion, is feeling some competitive heat, and applying its own.
Stripe, which last raised money in 2021 at a $95 billion valuation, recently announced an API product to connect to banks — Plaid’s original core product. That caused a Twitter tizzy as Plaid CEO Zach Perret briefly accused Stripe of snooping for competitive intelligence, a charge he withdrew. Stripe also has its own identity-verification product as well as ACH transfer tools.
Still, while they compete for customers on some products, Stripe and Plaid are not necessarily on a collision course, said Ryan Falvey, managing partner at seed stage firm Financial Venture Studio.
Falvey noted Stripe’s customer funnel is those accepting payments, especially startups or small or medium-sized businesses, while Plaid has more of an enterprise offering targeting fintechs and banks: “There are very different core segments they’re going after.”
Plaid is looking to help banks and fintech companies with anything related to the onboarding of a customer onto a financial product, said Plaid CTO Jean-Denis Greze. Identity verification is a big part of that.
With Plaid Identity Verification, part of the company’s acquisition of Cognito, consumers can enter their information, take a selfie and have Plaid do an identity check. It can recognize pictures of screens, printed paper and tampered ID cards and also does document verification, risk analysis and anti-money-laundering screening. Customers using it include Republic, Wyre, Gemini and FTX.
The goal is to make linking accounts and identity verification seamless, Greze said. “What we've heard time and time again from our customers is that they would love for us to start tackling other parts of the onboarding flow that ... introduce a lot of friction for end users,” said Greze.
Previously, fintech companies or banks using Plaid had to use a separate vendor for identity verification — and often multiple ones for different systems and different geographies, said Alain Meier, head of Identity at Plaid and the former CEO of Cognito.
Plaid does one check and can recognize more than 16,000 document types and in more than 200 geographies. The product can request more or less information from the consumer depending on the company’s preference, risk factors or location.
Currently these checks are being done on a per-company basis, every time a consumer signs up with a bank or fintech. Plaid has a consumer-facing portal it recently launched so people can see which of their various accounts are linked. Adding an identity verification service that could be used across companies would make sense. Greze said Plaid didn’t have anything to announce on that front.
Plaid is also announcing an ACH risk product, Signal, that looks at 1,000 factors including proprietary data such as Plaid connection history, account usage, past ACH use and identity change history. Then it gives a risk score for companies to decide whether the cash will actually transfer. This makes it possible for companies to give access to cash before the three-to-five days that it typically takes for ACH transfers to go through.
Plaid has seen a reduction of NSF return fees and fraud by about half among customers beta testing the product since last fall, Greze said. That has meant faster access to funds for consumers, he said. A related product uses Signal to guarantee ACH transactions.
Making ACH easier is important because bank accounts and fintech services need funds to be useful, Greze said: “If you think about it, for a lot of fintech, the critical point before you have a happy user is to fund the account, right?”
But it also brings Plaid more into the realm of payments. While Plaid is not a payments company, ACH is an alternative to other forms of payment such as credit cards.
The growing competition, Greze said, is a result of “following our customers … account linking is going to be more and more of a core experience out of everything that people do with money online, right?”
Both Plaid and Stripe, as large, private fintech companies, want to develop their story for Wall Street, Falvey said, which includes more recurring revenue products. That’s why they’re both expanding their products in ways that overlap.
Investors like SaaS-type products that are less subject to dips in volume than transactional sources, Falvey said. Both Plaid and Stripe have to prove that they can generate steady, growing revenue to match their sky-high valuations. That’s ultimately what they’re competing with.