Yesterday, financial data network Plaid announced the debut of its latest beta program, Deposit Switch, which allows end users to determine and alter the destination of their paychecks.
The offering provides customers with digital and fallback account funding options. The digital account funding, which is available to large companies, SMBs and gig economy workers, connects customer payroll or employer accounts through Plaid Link. The fall back method is available for consumers unable to employ digital account funding, so Plaid contacts employers for approval before fine-tuning a switch to direct deposits.
“In developing Deposit Switch over the last 18 months, we spoke with many traditional and challenger banks,” said Ashley Cornall, data product manager at Plaid. “They nearly unanimously identified account funding as a key priority and the process of establishing or moving direct deposits as a major pain point for their customers. In banking, those two things are often connected. Moving a direct deposit is time-consuming and costly for the banks, and is a source of drop-off in the customer onboarding process.”
Deposit Switch is geared towards optimizing account funding flows, higher conversion rates and lower customer acquisition costs for banks. It directly competes with manual direct deposit processes which can slow down onboarding and lead to higher account abandonment rates. According to a 2019 Digital Banking report, the average abandonment rate for online account opening is 19 percent.
“Plaid focuses on building products for developers that deliver great consumer experiences. This often means reducing friction to make it easier for consumers to adopt new apps and services. For those looking to try new banking services, account funding remains a barrier and a common cause of account abandonment,” said Cornall.
Deposit Switch customers include freelance mobile bank Lili and savings account startup Yotta Savings. “Working with Plaid, we’ve made it faster and easier for customers to take the first step by establishing and funding their accounts with direct deposit,” said Ben Doyle, co-founder of Yotta Savings. “Yotta also integrates with Plaid Exchange, so customers can securely use their Yotta account with other fintech apps for digital payments, financial planning, investments and more. Fintech is the new normal for most Americans and Plaid helps Yotta meet customers where they are.”
Since the PPP rollout last year, the integration of payroll data has become an increasingly significant opportunity for banks and fintechs alike. A particularly promising scope lies within streamlining paycheck destinations for direct deposit accounts. Banks are highly competitive when it comes to their onboarding endeavors.
“As customers can easily open checking accounts, banks are kind of forced with this dilemma as to how they recognize a primary account holder,” said Cale Johnston, founder and CEO of ClickSwitch, a startup which allows consumers to switch their direct deposits to their new accounts. One of these methods is to consider a customer’s primary relationship to their bank provider based on direct deposit accounts.
“In banking, some valuable incentives and innovative features are tied to direct deposit, such as no-fee overdraft protection and no-fee early access to wages. We want to make it as easy as possible for consumers to choose the products that best suit their needs and access valuable features like these,” said Cornall.