Tearsheet has been covering the data aggregation industry because it’s our contention that getting this right is one of the underpinnings of modern finance. Sharing clean data between banks and apps may be somewhat of a boring business but it’s an important one.
Plaid recently launched Liabilities, a product that gives PFMs and student loan providers and refinancers access to the liabilities side of their potential clients’ balance sheets. This is a very active area of fintech and should help to propel things forward.
Plaid’s Lowell Putnam joins us on the podcast to talk about the new product and how clients are using it in their applications. Lowell was also the founder of Quovo, a data aggregation competitor with strength in the investment industry that Plaid acquired earlier in 2019. He talks about the combined entity and provides some insight into the product roadmap the company plans to execute on.
Launching the Liabilities product
We’ve always lived with a very accounting-driven mindset. Liabilities is a departure from that core data set into what I’d call metadata, for lack of a better term. Liabilities represents the access to a whole new set of data points that are unique to liabilities financial accounts. The APR on your credit card or student loans didn’t traditionally have a home in our database. But we found a lot of companies were coming to us for a data set that was slightly more diverse that we didn’t offer.
It made a lot of sense to start with student loan accounts. We have a crisis of student debt in this country. There is a lot of interest in solving the crisis but there hasn’t been a lot of ability. There’s been a real asymmetry for the demand for products to help people with their student loans and the ability of those products to really be effective. We realized it was a data challenge.
What fintech is doing with liabilities data
Over the past year, the proliferation of high yield savings accounts and debit cards coming out of fintech companies has us all leaning toward a rebundling mindset. I guess the current trend in fintech is to go broad, rather than deep.
In the case of student debt repayment, the breadth story may be a little different. I don’t know if the breadth of these new student loan repayment firms includes dropping a high yield savings account. To me, it feels more like one leg of a PFM stool — helping you manage your overall budgeting life. I can see this more of a feature attached to other savings or PFM features. It’s pretty early to tell and it will take a while to see the benefit of student loan consolidation or repayment.
If I had to guess, you might see some of the rebundled incumbents like Acorns, Stash, Betterment or SoFi adding more sophisticated repayment tools as an ancillary product or feature.
The Plaid audience
The folks looking to add a debt management solution onto their existing stack, like MoneyLion, desperately need information about existing liabilities if they want to get people on a path to a better financial life. In this case, they’re expanding their product set into a new silo.
Some others can’t get to first base on a new product without access to things like APR. Today, it’s student loans. But the Liabilities product touches on metadata points like next repayment date, current APR, APR changes over time and delinquency rates. We’ll be moving into mortgages and credit cards and other debt classes. That will open a whole new set of products, too.
The combined Plaid and Quovo
There were convergent evolutions of our product sets so that about a year ago, we found ourselves highly competitive. It wasn’t like that historically. Plaid grew up in the bank instant authentication space and where it’s excelled from the early days. Quovo started doing brokerage account aggregation. We seemed very different back in 2013.
Quovo’s wealth clients started pulling us closer to the banking space because of their interest in banking and lending — this is part of the rebundling effort that you’ve recently covered. At the same time, Plaid was pulled into much more sophisticated PFM-style use cases.
We woke up and we were real competitors. Zach and I have known each other for a while. 2019 could have gone two very different ways. We could have beaten each other up in the market and pricing probably would have suffered. Or, we could join forces and play to our strengths. We got through the deal in about 50 days from beginning to end.
Commoditization of data
Nobody says I love ConEd. We are in a lot of ways a utility, but the commodity we have is literally the lifeblood of the companies we work with. When you have water and it works, you generally don’t think about the quality of the water. We have to do a better job explaining that there is dirty and clean water.
For a fintech starting out, if Plaid gets the data right from a small credit union in the midwest, it saves you a support ticket you would have otherwise gotten from another aggregator. That has ripple effects. There are hidden costs to poor data quality.
The product roadmap
Everything we’re doing here — at its core — is providing the raw data or first-order derived data that a fintech needs to really make an impact. The Liabilities launch is a good example of that: There was no place in our dataset to put an APR, but we had demand from customers for these data points.
I would expect to see a lot more from us over the next year, listening to our customers, and adding in data points they want but we don’t have. We’ll add them in in an expandable, replicatable way. We’re not just going to get one student loan — one element — for you. If we can’t cover eighty to ninety five percent of the market, we’re not very useful. So, adding breadth as well as depth will be part of our product roadmap. You’ll be seeing more liabilities asset classes later this year, including credit cards, mortgages, HELOCs.
The work we’ve done on investments which came from rolling in a lot of the Quovo technology — that’s already been initially launched this year. We need to keep doubling down on it because investments are probably the most complicated of any account type we work with. So, we’re really just at the tip of the iceberg for investment assets.
Whatever that one data point you need, we want to be able to source that one piece of insight you need to service your customers.