‘Signal makes the US banking rails behave the way they should in the future’: Plaid’s John Anderson

A couple of years back, Visa made a move to acquire Plaid but the Justice Department scuttled the deal. The idea was if a company whose business it was to create nodes at most of the financial institutions in the US and with millions of customers, it wasn’t far-fetched to see Plaid become a mover of money, not just financial data.

Well, Plaid now does over a billion ACH transactions a year and is investing more deeply into its payments offerings. The firm recently hired John Anderson from Meta, who has a 20-year history with building out innovative payments platforms. I spoke with John about Plaid’s positioning in payments and where it’s headed. The company recently released Signal, an ACH risk assessment and scoring API. 

John Anderson is my guest today on the Tearsheet Podcast.

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The following excerpts were edited for clarity.

I have spent almost 20 years at this intersection of technology and platform and payments. My first job in payments was way back working with eBay and working on a payment platform, and we ended up buying PayPal. In and out of this space, whether it was working in starting my own business in prepaid a while back. I then ended up at Meta way back in 2011, originally working on our risk teams, and supporting our payments platforms teams.

Throughout my whole career, I always wondered if I am just going to be working on payments, so I took some diversions along the way. I spent about two years leading the product team for virtual reality at Meta. Last year, I got to know Zach and the team here at Plaid. And in short, as I got to know the product, the business, and the customers, I saw Plaid’s doing something that I could work on that can make my kids and their kids pretty proud of what we’re doing. 

You’ve got to be so attracted to this confluence of the developers that we’re enabling, the customers that we get to work with, and also a product that makes consumers’ lives better, particularly through finance. It’s super appealing and felt like a really unique opportunity that I wanted to jump on. It’s been several months, and it’s been great so far.

Plaid and payments

It’s an interesting thing. Not a lot of people know that Plaid already is deeply powering payments. Even at the time [of the Visa acquisition], people were saying that Plaid is going to get into payments – I think Plaid already was at that point working in payments. We started 10 years ago working on allowing people to have greater financial connectivity and link accounts. But what has really transpired through that time is a vast chunk of our customers are using Plaid not just for giving people greater capability in fintech apps, but also establishing that connection to understand someone’s bank information to get them facilitating account funding. And so it’s already been the case even today. Again, not a lot of people know this, but we’re powering over a billion ACH transactions a year through the connectivity that we’re enabling through partners.

Payments are what customers want

As our customers are looking to us to help them move more money, it’s kind of opened up the demand from our customers and the opportunity for us to provide that much more value for them. So we started with account connectivity, which is, at this point, reasonably well known. We have started to expand on top of that – most recently, a huge development was a product we recently launched called Signal. And that allows not just our customers to go beyond establishing connection to the account, but then to assess the risk and how they can more effectively move that money. Signal is this product that reduces the payment risk and fraud through the machine learning system we have behind the scenes that helps customers understand with an ACH transaction, the likelihood of that transaction going well or not.

Marrying Signal with money movement

Especially with ACH, it has the underlying challenge that when you’re initiating an ACH transaction, that transaction can take anywhere from one day to sometimes taking up to three days. So, there’s a fair bit of fraud risk in ACH. And there’s a fair bit of risk to the underlying account having the money that you need to pull.

Signal has allowed our customers to unlock real value in ACH by getting back a risk score, or risk recommendation, on that transaction. The customer stories on Signal are just really, really powerful – there’s a company called Uphold that has a digital asset wallet product. They call Signal every time they allow people to fund those accounts. Through that, they’ve been able to allow 95% of those account fundings to happen instantly, with almost no increase in returns or fraud.

Where Plaid sits in the payment stack

A lot of people historically know Plaid through our Auth product, which allows people to establish account connectivity. And the vast majority of our customers work together with a lot of our partners to process those payments. So, we work with 50 or more of leading companies that do bank payments, whether that’s Square, Checkout.com, or others. Our customers can bring their own processor, and they use Plaid to do the connectivity in the process. That’s historically where we’ve seen such huge long term growth.

On top of that recently, Signal allows our customers to move that money faster through machine learning and better risk management. We also have a product called Transfer, which is for customers who just want one provider. They can come to Plaid to do their processing, as well as account connectivity.

ACH in the US

One of the things that I find interesting, just looking at the US payments industry, is bank payments are much more popular in other countries – it hasn’t taken off in the same way in the US. I think the biggest gap is that it’s not instant. When you go from some instant, or like anything greater than instant to instant, you see huge changes in liquidity in the system and in the use cases within the product. 

Another customer using Signal is Robinhood. They see a huge precision improvement, a 30% precision improvement, and a reduction in the false positives. Historically, what happens with ACH is a customer or any account sender has to decide, do I trust this user? And so particularly, with better risk systems like Signal, we’re effectively in a kind of synthetic way allowing our customers to make the ACH rail which isn’t fully instant behave like an instant rail. That’s massively opening up the applicability of ACH in general and more broadly applicable way for people to move money.

Addiction to credit cards

We think everybody’s addicted to credit cards and addicted to points. But when you actually look more broadly at the US segment, you see people using debit a lot more. More broadly, what we’re tracking is this interesting evolution – that people started out very focused on fintech and fintech apps and writing these new types of services. But what’s really started to evolve is this notion of embedded finance showing up all around in commerce. 

So whether it’s buy now, pay later, or prepaid cards (my last company was in prepaid, so I watch that closely), we see these micro versions of finance start to show up in more day to day use cases for how people end up transacting and living their lives. And those are use cases where we see ACH today, and maybe some future bank rails someday, really becoming more applicable. So at least what we’re seeing today, it isn’t necessarily like stealing share from credit or even debit, but instead, just growing the overall liquidity that people have and the different services they use, and by allowing them to more instantly move the money around between their services.

Product development

It’s probably the most fun part about being here – it really is an environment of co-developing with our customers. We’re super fortunate the roots of this company were built on and through co-creation with amazing startups who are building the things and solving these problems together, whether it was early days of Venmo or Robinhood and many other emerging fintech companies. 

For example, this morning I was talking to a customer who is building a certain type of marketplace, and they’re doing customer onboarding. They’re using Plaid for a certain piece of the business, but they call us and say, Hey, we have this other thing where we need to stitch in an identity, so that we can then extend credit to this customer, what do you think we can do? In that particular case, it’s really deeply in the roots through developers. That then allowed us to do something like Signal which is listening to what those customers had as a problem. And then also having the ability to look into the solutions we could provide, and then launch them internally with ease with Robinhood and many more at this point.

Landing and expanding with customers

It generally happens a lot that way. The vast majority of customers come to us because they’re excited about bank linking. And then they ask us to do more, whether it’s more in making the onboarding experience better, and optimizing and increasing their throughput at the top of the funnel, to then carrying through to things like what we offer with fraud prevention and ongoing transactions. I think that’s part of the magic – when you’re working with this B2B2C kind of space where you have infinite zones that we can co-create on. I’m making their business more efficient and helping them save money. We can also innovate on opening up and expanding their top of funnel so that they can grow faster. And so we can move on both of those axes.

FIs and the future of finance

FIs are absolutely central. Plaid now has connections with over 10,000 different financial institutions. And what has been really fascinating is the level of innovation and development that’s happening there. I think a big power behind that is consumer preference, shifting to being excited about and demanding greater connectivity from their bank or from their financial institution, and then that has kickstarted a whole new world of innovation, where we see a lot of our financial institution customers actually spearheading a lot of the new innovation on how data and privacy work to ultimately unlock a lot more value for customers.

I see them opening up to share data, just different pockets in different teams and then it becomes core to how the bank ends up building. And that’s also spearheaded by a lot of the new entrants, whether it’s Chime who’s a customer of Plaid, to many of the others who are, to some extent, showing examples and leading the way. We often see the bigger banks follow up quite quickly.

There’s examples now where I’ve seen banks boast about how interconnected they are, which is quite a long way the whole industry has come since the early days of Plaid. I aspire to see banks even further competing by the ability of openness and the capability that they enable. A lesser known fact is many banks are actually customers of Plaid. We see that segment growing really fast. 

Open finance?

I think open finance is a real thing. And that’s evidence based on the internet connectivity that you see with consumers, and liquidity and the growth of how many people are using different fintech apps. It’s absolutely exploded.

Looking ahead for Plaid

I think we’re very much innovating on two dimensions. On one hand, our customers are looking to us to bridge to the future. And at the same time, really being present to the realities of today. For example, cost cutting is a thing and being more efficient as a customer is a real thing. Opening up and being more optimal, whether it’s your ACH or your onboarding is a real thing to eke out more growth. What’s kind of fun is you can sit down with our customers and have both these conversations: drive for optimization for today, while also really experimenting on what we see coming around the corner with new rails.

Real Time Payments

I think you can look overseas — to Europe or down to Brazil or even to India — to see the potential of a more native interconnected real time bank rail. At the same time, I think in the present day, we’re already making really fast progress. Here in the US, we talked about Signal, but again, Signal is this way of actually allowing the US banking rails (ACH rails) to behave how they should in the future.

Whether it’s FedNow or RTP, or choose your favorite future rail, I think it’s quite clear that, on first principles alone, those new rails are coming in. They’re real and they will exist. The true reality, though, is that it is going to be a little bit of a patch quilt for some time to come. And so it gets fun with what we get to do — and we plan to help these customers navigate through that.

We see specific use cases, particularly today: RTP payouts as a real thing today. We can help our customers when they want to move money out fast, help them decide what’s the best way to route that money. And then we can also give consumers the ability to see that money deposited right away because Plaid gives them the underlying bank connectivity. So there’s things we’re doing to help customers to start to step towards that interconnectedness in today’s world and towards something that’s maybe three, four, or five years out.

Crypto payments

I haven’t seen crypto materialize as a viable independent rail. True, the transaction costs were real. Second of all, you always had the on ramp. And so crypto’s native payment method for say commerce, I think is still a reasonable ways out. That said, we’re still pretty early in the value that a lot of crypto can have for people as an asset, in particular. I think it’s going to take awhile before it becomes an actual commerce payment rail.