Plaid wants to make it easier for financial services companies to serve consumers and businesses, but it also sees significant holes in the fintech ecosystem. As a result, the company has issued a Y Combinator-like “request for startups” to tackle particular issues where it believes significant innovation is lacking.
In case you don’t know, Plaid is a kind of picks-and-shovels tool provider for the fintech developer community. Like Yodlee before it, Plaid enables startups and other tech companies to more easily connect with banks, credit card companies and other financial institutions, both to authenticate consumer accounts and access their financial data.
Basically, if you’ve ever used a third-party mobile app to analyze or manage your personal finances, chances are good that it was using Plaid to make that connection.
This means Plaid’s RFS is not an entirely altruistic proposal for the betterment of the fintech community — it’s also a not-so-subtle call for companies it doesn’t already know about to use its products.
That said, because Plaid has such a broad view of the fintech ecosystem — every company I’ve ever mentioned to the founders was already a customer — it also has a pretty good idea of what is missing. And that’s part of what’s driving the call for startups in these areas.
Borrowing from Y Combinator, which has published and updated its own “request for startups” list for several years, Plaid has put out a call for companies going after specific problems. But while YC has published its list as a way to funnel startups into its accelerator, Plaid is still working out what it will do with those companies once it finds them. According to founder and CEO Zach Perret, Plaid is still figuring out how it can help companies that fit into these categories the most.
“We think these things have a lot of opportunity and these are areas where we’d love to see new things exist,” Perret said. “We want to help build a community and lay the blueprint for what we think could be good businesses, or find out more about businesses that already exist.”
It’s probably also worth noting that the RFS is not just Plaid’s wish list. In coming up with its nine emerging sectors, Perret said the company consulted with other fintech entrepreneurs, investors and bankers to find out where they thought innovation was lacking in the financial services industry.
So what kinds of companies is Plaid looking for? Its list, and a description of companies in each sub-sector it’s looking for, is below:
Better bills. Bills are often made to be opaque and unengaging, perhaps with the hope that consumers will “set it and forget it”. Tools that allow consumers to actively monitor, better understand, and easily update their bills are much needed. Likewise, bill / rate benchmarking services and simple credit products to avoid overdrafts or missed payments could also drive great consumer value.
Consumer-centric loan servicing. Once most loans in the United States are issued, they are immediately passed off to a servicer, who is responsible for collecting (“servicing”) the loan until it’s been fully paid off. This is generally an impersonal relationship, and in the event a loan reaches collections, it’s often dehumanizing. There is significant opportunity to create a consumer-centric loan servicing model that helps coach consumers out of debt and — ideally — helps them to build good credit.
Hardware + software for branches. In-branch banking is waning, but a significant portion of our banking interactions still occur in-person. 80% of mortgages are still issued in-person. Though the trend towards digital, asynchronous banking continues, it could take decades. In the meantime, there is significant opportunity to digitize the in-branch experience, for lending, account opening, Know Your Customer (KYC), and much more.
Tax preparation. Despite being a relatively straightforward problem to solve, there are few startups are focused on tax preparation. Digitizing the U.S. federal + state tax codes would for a great open-source project, and doing so could enable many new entrants.
Mobile bank account opening. Opening a new account is the entry point to working with a bank, yet doing so is a cumbersome process that still often requires in-person branch visits, phone calls, and multi-day wait times. There is a significant opportunity for an SDK that can be embedded in existing mobile banking applications to enable bank account opening on mobile devices.
Abstractions from the core. Almost every bank in the United States relies on a mainframe-based “core” banking platform, predominantly built by a few long-tenured providers (Fiserv, FIS, Jack Henry). Interfacing with these proprietary “core” systems is incredibly difficult (and often requires the cooperation of the core providers themselves), meaning that many banks cannot build new features or functionalities for their users. Creating an abstraction layer on top of the core to allow banks to innovate more quickly could have massive value.
Brokerage-as-a-Service. To build an investing or robo-advising application, developers must work with a clearing broker that executes trades and holds shares on behalf of an individual. As investing applications continue to grow, there is opportunity to build a modern back-end clearing service that brokerage and investment applications can be built upon.
“Exotic” insurance. There is increasing interest in non-traditional property and casualty insurance, particularly around short-term policies that cover specific items. For example, laptop insurance for a trip abroad, or bicycle insurance for just a few hours. As data becomes more plentiful, accurately pricing these policies will become more practical.
Compliance-as-a-Service. Regulatory and payments compliance is difficult for startups, yet more and more must figure it out every year. There could be opportunity for plug-and-play compliance programs and platforms for early stage companies to help satisfy requirements for KYC, AML, BSA, etc.