By Aaron Schumm, Vestwell's Founder & CEO
The financial services industry has been hindered by years of precedent – antiquated technology, safeguarded data, and closed systems. Yet Visa’s recent acquisition of Plaid sheds light on what’s to come. Visa didn’t acquire Plaid for its revenue (estimated at around $150 million and having contributed only 30-40bps of net revenue growth in 2020), but for its access within a modern infrastructure. Some might say that Plaid is purely defined by access. Its central offering is the ability to connect different applications in a way that makes the flow of everything from data to money a seamless experience. Through an infrastructure that can flexibly work with financial institutions in a modernized fashion, Plaid sets the stage for bringing Visa’s tools and services to life across the customer journey.
Today’s modern tech stacks allow for more flexible, configurable, and efficient systems, which is why we saw over $128 billion in fintech acquisitions in 2019. Being the engine is a powerful way to build a business that scales, especially in the aging financial services market. In a world where consumers are taking a more holistic view of their financial wellness, connectivity becomes a critical factor across the thousands of providers in the ecosystem. Providers hoping to service these consumers, especially those built on older systems, must look outside their institutions and think strategically about how to best support the end-user.
So why is this important? Because having the right infrastructure in place has significant downstream implications. Traditional financial institutions cannot merely scrap their infrastructure and start fresh. Working within a legacy ecosystem, while modernizing the core of data movement and connectivity, is powerful.
Just as Visa is leveraging the Plaid acquisition to gain better connectivity, data, and access, so can these same benefits be realized in other markets. We see it happening on the payments side with Stripe as well as in the retirement space. In each, traditional providers are working off antiquated technology that wasn’t built to talk to anything else, yet the provider and the consumer can’t make proper, big financial decisions without modern structures in place.
Building a B2C business is always attractive… at first. It’s the idea of “what if we created and became the next [fill in the industry-leading brand name here]?”. But in financial services – an industry touching the 2nd-most sensitive thing in someone’s life, behind family – building a brand that one can truly trust is expensive.
There will not be one winner in a free market Finserv/Fintech industry, but there will be clear leaders. And those leaders will not be dethroned easily. This creates an even more attractive case to power the established leaders, enhancing areas of weakness, and emphasizing those of strength through modernization.
The banking, wealth, and retirement worlds have been reticent about providing data across partners. This is partly a business play, and partially a gap in capability. However, in a day and age where information is often readily available and where AI facilitates smart decisions, opening up clean data can be powerful in helping users make better decisions and, ultimately, enjoy a better user experience. Visa, for example, will now know not only transaction patterns and cash flow, but also a consumer’s assets and liabilities, so they can better offset risk and cash flow. They’ll also be able to tie in any applications and services that align to specific user needs.
It’s difficult to be all things to all people. Leveraging open architecture will drive efficiency. While M&A gives companies the ability to grow or streamline capabilities, there are always going to be competencies best left to someone else. Putting the infrastructure in place to take advantage of user synergies can significantly enhance the user experience. For example, eliminating multiple logins, ensuring consistency of data, and reducing bottlenecks, will save time and, ultimately, money, while a customized user experience will create retention.
Many in financial services find themselves embroiled in a space race to own the participant journey. In retirement, there’s an appetite for managing everything from benefits and wellness to managed accounts and lifetime income. In payments, it’s purchases and cash flow to assets and liabilities. Yet legacy technology inhibits integration, scale, and data. Plaid is an enabler for greater access, and this recent acquisition highlights how today’s modern mainstream will power financial services into the next chapter.