After being valued at $13.4 billion in 2021, fintech’s data plumber saw growth slow dramatically. Now CEO Zach Perret is moving aggressively into three new lines of business.
By Jeff Kauflin, Forbes Staff
Zach Perret, cofounder and CEO of 12-year-old Plaid, took the stage at the company’s annual customers conference in June, dressed all in black, his blond hair down to his shoulders, surfer-style. Standing before a backdrop of floating purple, ice-cube-shaped images, the 37-year-old opened with a pitch that evoked fintech’s go-go days of 2021—a time when San Francisco-based Plaid raised $425 million in funding at a $13.4 billion valuation, making Perret briefly a paper billionaire. “The optimism and the energy in fintech is back,” he said, later adding, “the fintech-ification of everything is happening everywhere.”
Despite such public bravado, Perret is clear-eyed about the challenges he faces as he tries to recharge Plaid’s mojo and ready it for going public, perhaps in 2026. He made his mark building the data plumbing for fintech–connecting consumers and their bank accounts to new services provided by the likes of Venmo, Chime, Robinhood and Affirm. Now he’s aiming to build products, too, by leveraging that connectivity and the vast troves of financial information Plaid continuously collects on 100 million-plus consumers. Perret is creating services in three lines of business: credit-risk analytics, fraud prevention and pay-by-bank (where you pay directly from your bank account instead of with a credit or debit card). What they all have in common is that Plaid’s existing network of connections could give it an edge.
Perret admits that launching all three at once is ambitious and that he’s not sure which is most likely to succeed. “Imagine a huge snake and it eats an elephant. And then you see this elephant slowly digesting as it goes through the snake. That’s kind of what we’ve done,’’ he says. “It’s been difficult. We’ve had to be very focused on how we spend our time and resources.”
It would be folly to count Perret out. In the fintech world of hype-masters and marketers, he’s built a real business. With many of the fintechs it serves in the doldrums, Plaid’s revenues grew only 12% in 2023, down from a 23% growth rate in 2022, according to people familiar with its financials. Yet it still booked $308 million in revenue and is on track for 20% top-line growth in 2024, sources say.
Plaid isn’t profitable yet. But it’s been paring losses, from $70 million last year to an expected $50 million or less this year, and still has about $140 million in the bank. Its gross profit margins are around 80%, above average for business-to-business software.
Plaid is certainly not worth $13.4 billion now; estimates put it at anywhere from $3.8 billion (per secondary marketplace analytics firm Caplight) to $8 billion (an internal valuation by one of its investors)—making Perret’s stake still worth hundreds of millions. The CEO of another fintech unicorn neatly sums up the questions around Plaid’s future: “Is it a business that, in a steady-state world, does $300 to $400 million of annual revenue? Or is it a business that does billions of annual revenue as it scales? I don’t think anyone knows.”
Perret and Plaid cofounder William Hockey met as junior consultants at Bain in Atlanta. Perret had studied chemistry and biology at Duke; Hockey, two years younger, was an Emory computer science grad. They bonded over a love of coding and rock climbing and a disdain for conventional financial services. By 2012, they had ditched Bain and launched a personal finance assistant that made budgeting recommendations. Users hated it.
So they pivoted to something they had developed along the way: software that helped consumers quickly transfer money from their traditional bank accounts to fintech apps. Selling the product and raising venture capital funding were a slog initially, but in 2014 they landed peer-to-peer payment service Venmo as a customer. When Venmo took off the following year, Plaid started gaining street cred. (Perret and Hockey also made Forbes’ 2015 30 under 30 list.) In mid-2016, Plaid was valued at $225 million as it raised a Series B funding round of $44 million from backers including American Express, Citi Ventures, Goldman Sachs and NEA. By 2019, it was a unicorn, valued at $2.65 billion.
From the first, Perret and Hockey adopted a strategy of what they called “selling through the basement”—they designed Plaid’s software and documentation to be easy for coders to use, believing developer enthusiasm would drive sales without lots of salespeople and marketing dollars needed. It worked. Plaid expanded much faster than competitors already in the bank-linking business, including Silicon Valley-based Yodlee and Utah-based businesses Finicity and MX.
It wasn’t all organic growth. In early 2019, Plaid spent about $200 million to acquire New York-based competitor Quovo, which had 200 employees–roughly the same as Plaid. “They purchased us to eliminate a competitor,” says Quovo cofounder Michael Del Monte, who’s now cofounder and CTO of Plaid competitor MoneyKit. Plaid rejects that interpretation, saying Quovo had strong traction with a different set of customers: brokerages and investment apps. That June, cofounder Hockey left Plaid, though he remained on Plaid’s board of directors, and he later launched a fintech-friendly bank, Column, where he’s CEO.
The initial approach Plaid and its fellow data aggregators took to connecting fintech apps to bank data was bold–and controversial. It created a bot that would prompt customers to enter their bank usernames and passwords, log in on their behalf, scrape any information it needed and transfer the requested data to a fintech app. Banks were enraged and terrified of the potential cybersecurity risks. What if Plaid got hacked? Of course, they also worried that Plaid’s technology would make it easier for consumers to switch their primary bank account.
Plaid, for its part, said it was acting for users’ benefit and that customers, not banks, had a right to control their own data—a position based on Section 1033 of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. A cat and mouse game ensued. One executive says his bank spent millions protecting data from the aggregators. “Plaid had to use hacking techniques to beat the protections we were putting in,’’ he says. A Plaid spokesperson responds: “It is inaccurate to say that Plaid was ‘hacking.’ Plaid always enabled data access at the request of the consumer … in a legal and compliant manner.”
Eventually, Plaid began striking data-sharing agreements with banks and agreed to stop screen scraping once a bank developed its own application programming interface (API) that Plaid could plug into. With APIs, banks could share limited information more securely, and Plaid’s connections got better, with less downtime. (Today, Plaid says it links to 12,000 financial institutions and uses screen scraping for only 20% of its connections—instances where a bank hasn’t yet built an API.)
Just this month, Plaid finally struck an API agreement with PNC Bank, the nation’s sixth largest. At the same time, the two companies agreed to dismiss a suit the bank filed back in 2020, alleging Plaid infringed on its trademarks by replicating its login screen (with its logo and color scheme). According to a federal judge’s opinion in the case, after PNC cut off Plaid’s access in 2019, the fintech deployed what it referred to internally as the “nuclear option”—a screen suggesting customers complain to the Consumer Financial Protection Bureau (CFPB) about the bank, even providing a link to do so. The truce came after that judge denied summary judgment in the case in August.
Despite such battles, Plaid was successful enough that in January 2020, Visa agreed to buy it for $5.3 billion–a nice return for VCs who to that point had put in a little over $300 million. The deal, Perret later said on a podcast, “would help us solve a couple of our biggest challenges, particularly working with the banks.” But the Department of Justice sued to block the merger and argued that Plaid was a “nascent competitor” to Visa, developing a lower-cost alternative to the debit payments Visa processes. While denying it was anticompetitive, in January 2021, the parties called off the deal.
Just yesterday, the DOJ filed a sweeping antitrust lawsuit against Visa, alleging it has illegally maintained its dominance of the debit card market (allowing it to charge excessive fees) through exclusionary agreements with merchants. The suit also says Visa prevented the development of innovative alternatives from fintech startups with “network ambitions” and that it feared other networks storing consumers’ banking information–as Plaid does–could cut Visa out. While Plaid isn’t mentioned by name in the new suit, in a press release announcing it, the DOJ pointed to the thwarted Plaid merger. (In a statement, Visa general counsel Julie Rottenberg said the lawsuit “ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving … This lawsuit is meritless, and we will defend ourselves vigorously.”)
Eric Sager, Plaid’s chief operating officer, says that even though the 2020 Visa deal failed, it boosted Plaid’s credibility and sales. Yet the year-long pending transaction also exacted a cost, with the prospect of a takeover slowing new product development. “When there’s an announcement that Visa is buying us, that’s normally not followed by an all-night programming session,” observes Alex Rampell, a general partner at Plaid investor Andreessen Horowitz. A pending sale puts a “chilling effect on that whole [startup] culture,” echoes another VC who invested in Plaid. “It takes some of the urgency away, and it’s really difficult to get that back.”
Perret describes the three months after the deal’s collapse as the hardest of his career–and a blur. “There was a month or two where I actually just don’t remember what happened because I slept so little,” he says. Plaid’s staff had nearly doubled to 650 during the prior year, and Perret tried to call every employee to explain its solo strategy and to reset attitudes. “The expectations, the hours, the pace are different, and we had to clarify, ‘Hey, this is the path that we’re on.’’’
Meanwhile, the fintech boom and crypto bull market were in full swing, with Plaid benefitting every time one of its thousands of fintech customers connected new users to their bank accounts. In April 2021, Plaid closed a $425 million Series D fundraise led by Menlo Park investment firm Altimeter at a $13.4 billion valuation–a sky-high 60 times’ Plaid’s 2021 revenue of roughly $225 million. How was the valuation set? “Supply and demand,” answers VC Mark Goldberg, a former partner at Index Ventures who invested in the deal. “Everyone was pounding down the door.” (It was a heady time for Perret. That May, his wife, entrepreneur Afton Vechery, sold her fertility-testing startup for a headline-grabbing $225 million.)
Then the bubble burst. In 2022, as the Federal Reserve started raising interest rates and crypto and stock prices fell, investment in fintech startups collapsed. In the fourth quarter of 2022, funding fell 70% from the year before to $11 billion, according to CB Insights. Plaid’s customers began spending much less on marketing, and cryptocurrency trading volume dropped steeply, meaning less revenue for Perret’s company. Plaid collects more than $1.00 each time a consumer newly links a bank account to a fintech app, according to the rates published on its website, which Plaid says can vary depending on customer size and other factors. It fell about $25 million short of its $300 million revenue goal for the year, according to people familiar with its finances, and laid off 20% of its staff that December.
That year, Plaid also took a financial hit for some of its historic screen-scraping practices—it paid $58 million to settle a data-privacy class-action lawsuit that alleged it collected more data than it needed to and had a user interface that had the look and feel of the user’s own bank account login screen, when users were actually providing their login credentials directly to Plaid. While denying any wrongdoing, it agreed to delete some consumer data it had previously collected, reduce the information it collected and make more disclosures.
As the fintech winter continued, Plaid’s growth slowed—to just 12% in 2023.
One of Plaid’s bids to expand its offerings and revive growth capitalizes on a new trend called cash flow underwriting, which aims to understand consumers’ creditworthiness by looking at a full set of their income streams and expenses as opposed to simply relying on loan and credit card payments reported to the credit bureaus. After a year of working through regulatory requirements, in November 2023 Plaid became a consumer reporting agency (CRA) so that it can sell credit-risk analytics. (Prior to that, its credit products only provided raw data, not analytical estimates and projections.)
Perret says Plaid’s network of data on bank-account balances and transaction history gives it an edge in estimating cash flow, especially for “thin-file” consumers who have little or no credit history with the three main credit bureaus. In theory, cash flow data can help lenders accept more of these borrowers or offer them lower interest rates than they otherwise could. And Plaid can charge a premium for it–as much as $5.00 for a credit underwriting analytic on a single consumer, according to Plaid’s pricing page.
Plaid’s move into this industry makes strategic sense, but it’s arguably late to the party. Finicity, which Mastercard bought in mid-2020 for $825 million, specializes in credit underwriting and has been offering cash flow analytics for four years. Yodlee offers them too. And Nova Credit, among other startups, has made a big push into this market. It became a CRA seven years ago.
So far, Plaid has landed non-bank lending customers like car retailer Carvana and personal loan company Upstart, but not what would be the holy grail for cash flow analytics: big banks’ credit card businesses. Most lenders aren’t using cash flow underwriting analytics at all yet, though many are considering it, says Plaid’s head of credit Mike Saunders. Perret points out that the sales cycle with big banks is long–typically 12 to 18 months.
Another hurdle: the historic bad blood between Plaid and the big banks. “Plaid had previously treated the banks as just data, the raw material providers of their business,” says one financial services executive. “And they were going to take those raw materials whether the banks were happy about it or not. Now they’re suggesting, ‘Oh, we want to sell this back to you.’ And there’s just a lack of trust.”
Another industry executive says Perret could have repaired relationships with banks faster by acknowledging that he may have underestimated their legitimate cybersecurity concerns. “When you just show up one day and say, ‘Oh, banks are now my friends,’ it’s disingenuous,” he says. (A Plaid spokesperson responds that there’s no evidence of distrust inhibiting Plaid’s business and that security “is something we always actively considered and made sure we were accommodating” through steps like third-party security testing.)
If Perret could go back and do it all again, what would he do differently? “A zillion things,” he says. He would have built better relationships with banks earlier on and created the custom software banks needed so they could buy Plaid’s products. “Banks really felt like we were building tools to enable the fintechs, which were competing with them, but we weren’t also building those same tools for the banks.”
Perret insists that over the past four or five years, Plaid’s relationships with banks have been “really positive for the most part,” and offers this tech-centric olive branch: “I believe the banks are the biggest fintechs and in that sense, can do the most good for consumers. And thus, we’re very committed to having very positive, long-term relationships with banks.”
In the long run, the old hard feelings probably won’t matter much, according to several industry executives. What banks really care about is profits, and if Perret can create valuable, differentiated products that make them money, they’ll buy them.
While banks still need to be sold on the virtues of cash flow underwriting, fraud-fighting services are already one of the fastest-growing segments in fintech—and understandably so. According to the Federal Trade Commission, U.S. consumers reported losing a record $10 billion to financial fraud in 2023, with bank transfers the most common way fraudsters collected their spoils. (Cryptocurrency was second.) Plaid entered this ballooning market in 2021 when it developed Signal, which analyzes the risks of pending bank transfers. There’s demand for this feature because U.S. bank-to-bank transfers can take days to settle–bad actors can exploit the delay by withdrawing money before a (bogus) transaction is finalized. Today, Signal analyzes $50 billion in transactions annually, Plaid says, up from $25 billion a year ago, and counts Robinhood among its customers.
In 2022, Plaid bought Cognito, a then nine-year-old identity verification company based in Oregon, for $250 million. Its products help financial institutions verify that people are who they say they are and comply with federal know-your-customer regulations, using information ranging from phone and Social Security numbers to selfies and typing patterns. (Plaid’s identity verification service doesn’t use Plaid’s network data on historical bank account openings.)
Plaid says that over the past year its identity verification and anti-money-laundering watchlist products grew nearly 200%, and it verified 19 million identities. But it remains a small player–there are at least 140 companies that provide identity verification services in the U.S., according to market research firm Liminal. One of the market leaders, Socure, says it verified 206 million identities over the past year.
Yet Plaid’s pipeline role could give it an advantage. Tellingly, its buzziest new product is Layer, which Plaid announced in June and is marketing as providing “the Internet’s fastest financial onboarding”—it speeds up the signup process for consumers who have previously linked an account through Plaid. Companies can use Layer in two ways: to help consumers more quickly connect to their bank accounts and to verify their identities. Plaid says Layer can verify an identity and link a bank account for returning users in as few as ten seconds, compared with 30 to 60 seconds for Plaid’s standard identity verification service and 20 to 30 seconds for its standard account-linking feature.
Layer is already the fastest-growing product in Plaid’s history, with dozens of customers–including 5 its largest 20–either testing it or already using it. Plaid claims Layer is increasing the normal 40% to 60% conversion rate (that is, the signup completion rate for consumers who start the signup process) by an average of 17 percentage points.
Pay-by-bank, the last of Perret’s bets, depends on a change in consumer behavior. In the U.S., reward-happy consumers buy nearly everything with credit and debit cards, only paying for a handful of things like car insurance and utility bills directly from their bank accounts. By contrast, pay-by-bank is already highly popular in Brazil, India and parts of Europe, largely due to government policies and widely available instant payment rails.
Still, U.S. merchants love the idea of pay-by-bank because it cuts their cost of accepting payment by as much as 40%. Now more Americans are starting to use pay-by-bank to pay digitally through transfers facilitated by Plaid and a growing list of competitors, including Stripe, Trustly, JPMorgan and Mastercard’s Finicity.
Plaid released its pay-by-bank feature, known as Transfer, all the way back in 2021, but customers have only started asking for it in significant numbers over the past year. The recent development of faster U.S. payment rails like the Real Time Payments Network and FedNow have made pay-by-bank even more attractive to merchants, since they can get access to money they’re paid immediately instead of waiting a day or more for a transaction to settle. So far, Plaid’s customers include two of the five largest U.S. telecommunications companies and online bill payment platform Bill.
Plaid won’t say how much money in bill payments it’s processing through its pay-by-bank feature, but it’s clearly still a tiny business and the last one Perret decided to lean heavily into. He felt a strong pull from the market and didn’t want the window to close while competitors pounced.
There’s just one problem: Beyond recurring bill payments, there’s massive uncertainty on whether people will use pay-by-bank for day-to-day ecommerce transactions. That’s why Perret considers it a gamble. “It’s either going to be huge or it’s not. And we definitely believe in it, but it’s so unpredictable for me,’’ he says.
Perret and his fellow executives describe the company as being at an “inflection point” and poised for much faster expansion. Investor Rampell says Plaid is demonstrating “the fastest pace of innovation since we started working with them.”
But big challenges remain. One is that the three new product areas Plaid is targeting are all intensely competitive. Another is that, with 1,100 people, the company is no longer a small, nimble startup, yet it will need to make fast, difficult decisions on where to cut and invest.
Meanwhile, it faces pricing pressure in its bread-and-butter business of bank-account linking. Plaid already has several large competitors in this space, and with the CFPB in the process of finalizing rules governing Section 1033 personal financial data rights, more standardization is coming for how fintechs and banks connect to each other, which will likely accelerate commoditization. (A Plaid spokesperson says its account-linking products are highly differentiated, noting that, among its top 50 customers from five years ago, 86% are still with the company today.)
Moreover, some financial services executives predict that over the next few years, larger fintechs could start connecting directly to the biggest banks through their APIs, using Plaid or another aggregator only to connect to thousands of smaller banks. Ryan King, cofounder of Chime, a major Plaid customer, is skeptical that many fintechs will find direct connections worth the hassle. “The largest banks and largest fintechs have had APIs up and running for several years, and they’re all still using Plaid for their connections,” says Plaid head of policy John Pitts.
The big question hanging over Plaid’s investors and stock-owning employees: What is Plaid worth, and when might it be able to go public? Publicly traded fintechs are still off about 50% from their 2021 peak.
All Perret will say about the timing of a possible initial public offering is that he’s watching the capital markets, the size of Plaid’s business and the maturity of its new products. “At some point in the coming years, all these things will line up to make it the right time. But the right time is not today, and we hope that it’s at some point soon.”
Update, 9/25/24: The number of identities Plaid verified over the past year was updated after a Plaid spokesperson said the number Plaid previously provided was incorrect.
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