Data aggregator Plaid and cross-border payment provider Wise have reached an agreement whereby Wise will work directly with Plaid’s 6,000 fintech clients.
This means Wise’s 13 million UK-based customers can connect their Wise account directly to fintechs such as Venmo, Chime, Truebill, Acorns and Betterment and transfer money back and forth. They will no longer have to log into a traditional bank account or transfer money to and from a bank account to use fintech apps for things like person-to-person payments, investing, or personal finance.
This is an example of how Plaid is expanding its reach across the entire financial industry, how it is attracting more financial players of different types into its fold, and how the fintech ecosystem could begin to break free from dependence on traditional bank accounts and bank payment methods. This kind of surge in money movements is why Visa attempted to acquire Plaid in early 2020. Later that year, the Justice Department decided to block that merger, citing antitrust concerns. , and the two companies abandoned the idea. This is also why Stripe announced its own open banking initiative whereby the payment provider will work directly with fintechs.
“The Plaid deal allows Wise to provide its Borderless Account customers with much of the digital functionality of a U.S. bank account,” said Todd Baker, senior fellow at the Richman Center for Business, Law and Columbia University Public Policy and Managing Director
Broadmoor Council. “This is a very attractive feature for its internationally active customer base and a hit for Plaid.”
Wise and Plaid say their collaboration will bring more convenience to Wise customers.
“Wise has seen a huge increase in users, and as these users transfer and transfer money, having Wise as a potential primary account through which a consumer would want to move and manage their money has become increasingly critical” , said Raja Chakravorti, head of universal data access at Plaid, “It’s not that different from how Venmo accounts evolved somewhat into primary checking accounts, when initially were geared more towards peer-to-peer money transfer.”
Such relationships help Plaid expand its network effect and its ability to move money through that network.
“We’ve always found that the more we can create a seamless experience for a consumer by connecting their accounts in a way that allows them to deploy directly into the solutions they want to use, the more effective that is for consumers,” said said Chakravorti. “We try to focus on ensuring that the movement of money is as transparent as possible.”
Wise says it gives consumers a much better money-moving deal than banks.
“We’ve seen in the market that more and more consumers and small businesses are realizing that they are being scammed by their bank or cross-border money transfer provider,” said Sharon Anne Kean, Senior Director of expansion at Wise. “There has been a game in the market for years where providers advertise no foreign transaction fees and instead hide the fees in exchange rate markups. We believe this is wrong and consumers deserve prizes transparent throughout their relationship with their financial provider.”
Wise provides transparent pricing at an average exchange rate, she said.
“We also have price comparison charts and will show consumers if we’re not the cheapest,” Kean said.
Wise selected Plaid as its data aggregator because of the breadth of its app connections in the United States, she said.
Plaid’s Core Exchange allows any institution to create API level connectivity with other institutions. It uses the FDX specification for its APIs. Around 1,000 financial institutions use Plaid’s data connectivity suite, which includes Core Exchange.
Fintechs and banks have turned to API-based data sharing and moved away from the screen-scraping methods that Plaid and others use when no API is available.
A Harris Poll sponsored by Plaid found that 69% of consumers would leave their primary financial institution to go to a financial provider that could connect their information to fintechs.
“It’s dramatic and consumers have already kind of made that choice for fintech,” Chakravorti said.
Wise customers have already started using Plaid connectivity, the companies said. Consumers connect their Wise accounts to peer-to-peer payment apps and investing apps. Business customers use it to send funds to payroll companies and connect to neobanks, as well as pay credit card bills and pay taxes in multiple states, among other use cases.
Some industry observers have expressed some concern over the announcement, pointing to the fact that Wise’s own US disclosure indicates that all of his borderless account balances are uninsured by the Federal Deposit Insurance Corporation and are invested in accordance with money transfer laws.
“The client relies on Wise’s continued creditworthiness to protect their funds,” Baker said. “There is a very serious regulatory loophole here that Wise is exploiting. The money transfer licenses that Wise holds in various US states were not designed for businesses that hold outstanding balances for customers. designed for the rapid transmission of money and not for holding outstanding customer balances, and therefore offer no protection for those balances in the event of Wise’s default.
If Wise were to file for bankruptcy, Baker said, the holders of his Borderless Accounts would be unsecured creditors and would likely lose most of their funds.
“This in turn creates a real risk of a ‘run’ on Wise in the event of difficulties, and thus increases the overall risk profile of the Wise business,” Baker said.
Regulatory issues aside, deals like this seem like the way of the future as payment providers and fintechs look to grow and save time and money.
“What every payment and money issuer wants is more currency through their platform because volume is key to their profits,” said Brad Leimer, co-founder of Unconventional Ventures. “So it makes perfect sense that Wise wants to connect all possible account types using Plaid to facilitate new user growth and reduce barriers to sending and receiving money.”
That’s why more and more banks and networks are building their own rails to facilitate P2P payments and remittance channels, he said.
“The platforms that move the most money through the system achieve greater scale of efficiency for their ecosystems,” Leimer said. “We will see a lot more.”