By W.B. King
The 2021 Collision Conference brought together thought leaders from Citrix, YouTube, MasterCard, Avast, DocSend, Goldman Sachs, Sym, and FIS, among many others. Discussions ranged from investing in cryptocurrency to cancel culture to hybrid offices to AI technologies.
Finopotamus, along with 38,000 attendees from more than 140 countries, virtually attended the event (April 20 to 22) to better understand how influential players outside of the credit union space are viewing technology trends. This article is the second installment in a three-part series.
Understanding the Fintech Mindset
At the beginning of a 20 minute discussion on "The Next Year in Fintech" with Plaid’s Co-founder and CEO Zach Perret, moderator Shannen Balogh, who writes on payments and fintech for the Business Insider, asked him to define the often generalized term: fintech.
“Fintech has many meanings—mostly related to startups, especially, but when we say fintech we mean financial technology or as I often say, ‘digital finance,’” said Perrett. “It’s an incredibly broad market but it represents the digitization of the traditional financial services industry.”
The San Francisco –based Plaid builds data transfer networks that powers fintech and digital finance products. Founded in 2013, the company counts Venmo, SoFi and Robinhood Financial as clients, and its network covers 11,000 financial institutions across the US, Canada, UK and Europe.
In terms of consumers’ expectation and demands when conducting financial transactions as well as their opinions on fintechs, the pandemic, in Perret’s view, represents a “sea change.” While consumers could no longer walk into a branch, he said that they still needed to pay bills, apply for loans or get paid by their employers. As a result, digital transactions grew exponentially. And for people 50 years and older, who Perret said normally did not engage in digital transactions, adoption rates for this demographic increased 50% by the second half of 2020.
“There has been a huge demographic shift and it seems that consumers (and small businesses) now see digital finances as the new normal,” he said.
Perret believes that the industry-defining digital finance products being used 10 years from now will be built on the advances being made during this trying time period. He pointed out, however, that today's innovations aren’t being developed by startups and fintechs alone.
“It’s coming from the banks themselves and from the large established technology and non-technology companies that are saying that there is a better way to serve consumers, a better way to make profit, a better way to expand consumer relationships,” he said. “So they are starting to add many more digital financial products over time.”
How Fintech is Changing Lending Practices
One of Plaid’s current focuses is on data, consumer privacy and consumer infrastructure, noted Perret. Speaking to secured data sharing and data access issues, Balogh asked for examples as to how sharing financial data impacts the end consumer.
“One area we focused a lot on is the concept on how to bring the right data into the lending process and allow a consumer to apply for a loan in a way that takes advantage of all the data they have available, not just the data that might be available on behalf of the credit bureaus,” noted Perret.
He added that a couple of Plaid’s early customers, include the peer-to-peer lending company, LendingClub, and Upstart, an AI lending platform that partners with financial institutions on personal loans using non-traditional data.
In an attempt to change the data lending criteria landscape, and to further the Plaid's thesis of financial inclusion and access, Perret explained that the company recently launched three real-time verification lending products for asset, income and employment.
“You can verify all of these bits of data that are necessary to get a loan as a consumer but based on the underlying data source not based on what a credit bureau is reporting,” said Perret. “For us, this continues to increase access to data because so many people are credit invisible or credit thin-file, but they obviously do have income and employment. By increasing the probability in which these consumers will be able to match, we think it expands the market of available consumers out there.”
One use case study that supports Plaid's lending initiatives is the PPP loan distribution process, which, Perret said was the first time digital lenders were able to participate in making small business loans.
“What I expect we will see—bit by bit and market by market, and piece by piece—is that digital financial products are going to come and help expand access, but frankly we are still in the early innings,” said Perret.
With the goal of allowing consumers to have access to all the financial products they need and to ideally have financial freedom and empowerment, Perret explained Plaid’s offering is an API that is sold to developers and banks. Balogh questioned how this API applies to consumers. The answer, he said, is a conundrum of sorts.
“We think there are two really important elements. First is being really clear with consumers in a way that creates trust and security with a very strong focus on privacy. So in the onboarding process to all the products we have a direct conversation with the consumer explaining to them exactly what data they are sharing and where that data is going,” said Perret. “Secondarily, we focus on consumer enablement.”
To support his second point, Perret noted that Plaid recently launched a product, which is still in beta testing, called “Plaid Portal” where a consumer can turn off applications that have been previously linked to their accounts. The product also offers annual privacy checks and other oversight functions so the consumer knows exactly what is transpiring with their account.
“As a company, we are here to enable our customers and ultimately are customers are then building the direct-consumer products,” said Perret. “We want to be sure that the consumer brand and interface works very harmoniously with all the customers that are built upon Plaid and all our banking partners as well. It’s a really tricky and interesting thing to navigate and we spend a lot of time thinking about how we can build a brand focused on trust, security and the enablement of privacy.”
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