by Jason Costa
Plaid is an interesting company in the fintech space, offering a variety of services though most well known for connecting users' bank accounts to applications. Plaid is growing quickly in its respective market, and there’s an interesting question of whether Plaid should approach “offline-first” companies (think State Farm, Wells Fargo, etc.) and start to develop that as a business vein. I believe the answer is yes, but in a very “light touch, long time horizon” manner. It’s worth having a very small product & sales team that could focus on this segment of the market, but with the expectation that it may take a five to ten year window for many of these potential customers to truly come online; maybe longer. They’re slow moving industries, and in my opinion the key to tipping them is through consumer demand.
Strategy: Win the digital war first
Plaid should double down on integrating with any digital application that has a financial component. This would expand the consumer reach by growing the footprint of users engaging with Plaid, and also derive more value from the existing user base via more integrations generating higher frequency of usage. From what I’ve read, Plaid is integrated with approximately 1,795 applications - yet there are 2.1M and 2.6M in the App Store and Google Play, respectively. Even if we assumed a 5% lower bound of apps having a “fintech” component, that would still put the company at 235k apps (105k iOS + 130 Android). If we further assume that 25% of these apps are of high quality and a “desirable” integration, that includes 58,750 apps; an order of magnitude more than where Plaid is today based on public data.
By winning the digital war, and solidifying a foothold of data depth across a broader user base, the supply side of “offline-first” financial firms will inevitably look to integrate Plaid when they are forced to go digital because that’s where the consumer demand is.
Market segmentation
For “offline-first” outfits, focus on players in the US, given that’s where Plaid is readily available to users and not demand constrained (Canada is live, but that’s a fairly recent development). That said, these are examples of industries to think about tackling because of the sheer market opportunity size (each of these markets are more than a trillion dollars in value, vast majority still “offline”):
insurance (example: State Farm, Liberty Mutual) is $1.24T premiums in the US, roughly ~8% of market is “digital first”
residential mortgages (First Republic, BofA) is $1.63T outstanding in the US, while 20% of this is “digital first”
student loans (student credit unions) is $1.52T outstanding in the US, with ~7% of that being “digital first”
Rather than tackle the aforementioned incumbent players though, I’d look to the smaller digital players who are going to upend these industries with a real shot at growth over the coming years. Stripe executed on a similar strategy when it identified earlier stage companies with payment needs such as Lyft, eVite, Airbnb, Blue Bottle Coffee, Rackspace, & more - and then grew on the back of those companies as they ran up their GMV.
Plaid could instead focus on integrating with the likes of Blend (mortgage lending), Lemonade (homeowner insurance), Cover (personal insurance), CommonBond (student loans), and so on. Several of these companies are worth a billion dollars already, and have the opportunity to get a lot bigger. Again, these companies are highly likely to get bigger because increasingly more consumers are looking to manage their financial lives online.
Product offering (abstract the technical details)
I mentioned above though that Plaid should still have a “low touch, long time horizon” approach to the offline-first players. In short, if one were to divvy resources here: throw >95% of engineering and sales at the digital opportunity that exists today - and win that market outright. The remaining <5% could be a kind of skunkworks team that builds a web UI for for these offline-first financial institutions. Sales would account manage to keep these players warm; so when State Farm is ready to move online, they’ll already be familiar & comfortable with Plaid. And since these are longer sales cycles with a more moderate touch, the number of customer accounts to sales rep can be a higher ratio. The team could even add more categories to go after assuming capacity.
On the product front, one key here is to not require engineering resources of these companies. The experience should be a seamless transaction for even the least tech savvy employee. Imagine a mortgage lender or insurance agent emailing or texting the end-user a plaid.com link that spawns an authentication & authorization dialogue on the user’s phone. The user can decide to enable certain data permissions for that lender, which the “offline-first” lender could access temporarily in read-only at business.plaid.com (a dashboard for these lending businesses), which could also include a “digify-like” PDF output for auditing purposes.
This would remove customer engineering resources to integrate with an API. This web-based product approach and conditioning of the market via sales would take on a longer time horizon (i.e. 5 to 10 years for the market to “tip”, maybe longer) while winning the digital market first. As more users begin to manage their finances online, the supply will be forced to follow the demand into areas where the market wants to transact.
Conclusion
It’s unclear to me how far Plaid’s reach is with customers in specific industries. If we were to evaluate just the mortgage lending space for a moment, what is clear is that even if Plaid is already integrated with Blend - there are many other players such as Roostify, CloudVirga, Mortgage Builder, LendingTree, MortgageHippo, LendingHome and more to go after. Plus, we haven’t even touched on the international opportunity with digital finance integrations yet.
Focus the majority of efforts and resources on digital-first, and keep the “offline-first” players warm with a simple product offering & account management. When State Farm or Wells Fargo do come online with a major presence, Plaid will be there waiting. Most important though - we’re in the early innings of fintech, and many of these “digital first” companies could become the next State Farm or Wells Fargo.