Fintech

Plaid’s payroll-data offensive hits a speed bump

Protocol has learned that the financial data aggregator is pausing a product that helped switch consumers' direct deposits to a new bank. It's still pursuing other efforts to provide income data to its fintech customers.

Plaid CEO Zach Perret

Zach Perret is the CEO of Plaid, which is pausing work on its Deposit Switch product.

Photo: George Frey/Bloomberg via Getty Images

Plaid's big move into payroll data — a key area of expansion as the financial data aggregator seeks to grow into its $13.4 billion valuation — has hit a snag after the company was forced to hit pause on a key product that made it easier for consumers to switch direct deposit accounts.

Plaid has suspended work on its new Deposit Switch product, which automates a process that typically involves a manual and time-consuming procedure, Protocol has learned.

A company spokesman confirmed the move: "We recently decided to temporarily pause development efforts on Deposit Switch," he said, in order to "shift resources to accelerate development on Plaid Income, where we see greater immediate opportunities."

"This does not signal that Plaid is less committed to the payroll data API space," the spokesman said.

Plaid unveiled Deposit Switch in January, followed by Plaid Income in March, in what was supposed to be a major offensive in a hot, new fintech arena. Access to payroll data has become a critical need for fintechs looking to offer new services, from income verification to loan underwriting to direct deposit.

Plaid's rollout was viewed as a game-changer for that market, given the company's record as a trailblazer in data aggregation and access technology. Its software tools and services are used by major fintechs including Square, PayPal, Robinhood, SoFi and Affirm.

"The sense I get is that they've definitely poured some gas on the fire in terms of just conversations around the space happening," Alex Johnson, director of fintech research at Cornerstone Advisors, told Protocol. "Plaid entering the market has just sort of sped everything up. Plaid's kind of an 800-pound gorilla at this point."

But accessing data in the payroll market can be challenging. Many payroll-focused startups rely mainly on API connections to secure data, while other companies, including Plaid, use a combination of API access and screen scraping.

Access to banking data is controversial enough — it's the subject of a major regulatory fight over open banking. But payroll data adds more complexities. Instead of just banks, fintechs, consumers and Plaid, you've got employers, who are the paying customers of payroll providers, and their workers. Add in a whole other scheme of regulatory concerns — California and Europe's privacy laws specifically protect employee data, for example — and you've got a recipe for a slowdown.

Johnson said the challenge for players in this space is "striking the right balance between working with the payroll system providers directly and going around them using screen scraping."

"Payroll API startups tend to have a different calculus than established providers like Plaid in determining what that right balance is," he told Protocol.

ADP said in March it was "actively working towards a partnership" with Plaid to provide payroll data without handing over login credentials. That capability appears to be live and available to customers signed up for a beta test, according to Plaid's documentation. Other providers require entering a username and password to log into a payroll provider or employer site.

Plaid is "working closely with leading payroll service providers to prioritize credential-less API data access, a major initiative for Plaid overall as we move into an open finance future," the company spokesman said.

Plaid recently settled a privacy class-action lawsuit for $58 million, agreeing among other things to clearly disclose what data it was collecting and why, and make a user's data available through a portal for verification or deletion on request.

Update: This story was updated on Aug. 12, 2021, to clarify the nature of ADP and Plaid's relationship for payroll data.

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