Plaid deal allows Wise customers to use fintech apps bank-free

The data aggregator Plaid and the cross-border payment provider Wise have entered into an agreement in which Wise will work directly with the 6,000 fintechs who are Plaid customers.

This means UK-based Wise’s 13 million customers can connect their Wise account directly to fintechs such as Venmo, Chime, Truebill, Acorns and Betterment and move money back and forth. They will no longer need to link to 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.

It’s an example of how Plaid is expanding its reach throughout the financial industry, how it’s bringing more financial players of various kinds into its fold and how the fintech ecosystem can begin to free itself from its reliance on traditional bank accounts and bank payment rails. This kind of push into the money movement is why Visa tried to buy Plaid in early 2020. Later that year, the Justice Department moved to block that merger, citing antitrust issues, and the two companies dropped the idea. It is also why Stripe announced its own open banking initiative where the payment provider will work directly with fintechs.

“The Plaid agreement allows Wise to provide its borderless account customers with much of the digital functionality of a US bank account,” said Todd Baker, senior fellow at the Richman Center for Business, Law and Public Policy at Columbia University and director. headmaster

Broadmoor Consulting. “This is a very attractive feature for its internationally active customer base and a coup for Plaid.”

Wise and Plaid say their partnership will bring convenience to Wise customers.

“Wise has seen a huge increase in the number of users, and as those users have been transferring money in and transferring money, having Wise as a potential primary account that a consumer would want to move and manage their money with became more and more critical,” said Raja Chakravorti, head of universal data access at Plaid. “It’s not that different from the way Venmo accounts have somewhat evolved into primary checking accounts, when they were initially more oriented around peer-to-peer money transfers.”

Such relationships help Plaid expand its network effect and ability to move money across the network.

“We’ve always found that the more seamless we can create an experience for a consumer to connect their accounts in a way that allows them to deploy directly into the solutions they want to use, the more effective it has been for consumers,” said Chakravorti . “We’re trying to focus on making sure there’s as seamless a movement of money as possible.”

Wise says that gives consumers a much better deal in money movement than the banks do.

“We’ve seen in the marketplace that more consumers and small businesses are realizing they’re being ripped off 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 do not advertise foreign transaction fees and instead hide fees in exchange rate markups. We believe this is wrong and consumers deserve transparent pricing across the entire relationship with the finance provider.”

Wise offers transparent pricing at an intermediate rate, she said.

“We also have price comparison tables and will show consumers if we are not the cheapest,” Kean said.

Wise chose Plaid as a data aggregator because of the breadth of app connections in the U.S., she said.

Plaid’s Core Exchange allows any institution to build API-level connectivity to other institutions. It uses the FDX specification for the APIs. About 1,000 financial institutions use Plaid’s data connectivity suite, which includes Core Exchange.

Fintechs and banks have moved towards API-based data sharing and away from the screen-scraping methods Plaid and others use where no API is available.

A Plaid-sponsored Harris survey 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 made this choice for fintech,” Chakravorti said.

Savvy customers have already started using the Plaid connection, the companies said. Consumers connect their Wise accounts to peer-to-peer payment and investment 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 several states, among other things.

Some industry watchers expressed some concern about the announcement, pointing to the fact that Wise’s own US disclosure states that any balances in its limitless account are not insured by the Federal Deposit Insurance Corporation and are invested in accordance with money transfer laws.

“The customer is dependent on Wise’s continued soundness to protect their funds,” Baker said. “There is a very serious regulatory gap here that Wise is exploiting. The money transfer licenses that Wise has in various US states were not designed for businesses that carry current balances for customers. They were designed for rapid transfer of money and not for keeping customer current balances. as a result, they provide no protection for those balances in the event Wise fails.”

If Wise were to go bankrupt, Baker argued, the holders of its limitless accounts would be unsecured creditors and likely lose most of their funds.

“This in turn creates a real risk of a ‘run’ on Wise should it run into any difficulties, thereby increasing the overall risk profile of the Wise business,” Baker said.

Regulatory issues aside, deals like this seem to be the way of the future as payment providers and fintechs seek to grow and save time and money.

“What every payment and money transmitter 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 sense that Wise would want to connect every type of account it can using Plaid to facilitate new user growth and reduce any barriers to sending and receiving money.”

This is why 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 a greater scale of efficiency for their ecosystems,” Leimer said. – We are going to see a lot more of this.