Lots of us use apps like PayPal or Venmo. When we connect up to them, they connect up to our bank accounts.
Most of us don’t think much about how that happens – and how come that happens safely and securely. Plaid is the little-known fintech company that makes all this possible.
Plaid is the expert on financial Application Programming Interfaces, which are the special kind of software that makes these connections possible. It’s a software intermediary that allows two different systems to talk to each other. Each time you use an app like Facebook, send an instant message, or check the weather on your phone, you’re using an API.
In January 2018, the EU Payment Services Directive came into force, and obliged all financial institutions to make their customer data available to other financial services companies. Banks were obviously targeted, and the API is the solution the industry has found to make connections with banks.
Visa tried to buy Plaid last year, but the US Department of Justice intervened, charging that the purchase was intended to control competition. The DOJ took the case to court and won.
The result was that Plaid launched another round of financing, and wound up being valued at $13 billion, far more than Visa was offering.
The company’s user base grew 60 per cent in 2020, and according to figures that emerged in the Justice Department lawsuit, made $100 million in profit in 2019 (as a private company, Plaid is not required to make its financials public).
What is interesting about Plaid is that it’s the backbone holding together nearly all of the new fintech and crypto ventures.
“That’s one of the beautiful things about Plaid–you don’t have to pick if it’s Chime or Robinhood or Current that wins. If you believe that fintech is going to explode as a category, then Plaid is a derivative bet on that whole thesis,” Index Ventures partner Mark Goldberg told Forbes.
Plaid founder Zach Perret has pointed out that the vast majority of consumers are moving to one type of fintech solution or another, whether it be Revolut or N26. This means there is vast growth in the industry for Plaid to exploit.
“If we assume that, based on last year’s growth and annualised revenue, Plaid expects to make $225 million in revenue this year, investors would be paying 59 times sales at the $13 billion pre-money valuation. For payments giant Stripe, the comparable revenue multiple is 50,” estimates Lisa Ellis, a partner and senior analyst at investment research firm MoffettNathanson. Stripe was recently valued at $95 billion, and Ellis projects it will hit $1.9 billion in revenue in 2021.
The individual investor can’t put money in Plaid, for now, but the company is planning an IPO in the near future, according to Perret. It is likely to be a very popular one, given how investors currently view the success of the company. It’s definitely one to watch for.