Has Plaid Lost The Payroll Race?

#1: Has Plaid Lost The Payroll Race?

What happened?

Pinwheel, a data aggregator focused on the payroll space, announced a new partnership with Plaid:

Today Pinwheel … partners with Plaid, the leading open finance network, to provide complementary payroll data services for its Income product. In addition, Pinwheel will become a Preferred Provider for direct deposit switching (DDS) services. As the Preferred Provider, Plaid will refer customers in need of direct deposit switching services to Pinwheel.

So what?

In addition to Pinwheel, Plaid has also partnered with Atomic (another payroll API company) to help shore up its income verification product.

Plaid’s blog post announcing these developments focused on emphasizing the importance of bank transaction data (over payroll data) and improved fraud detection in income verification and only obliquely referenced the partnerships with Pinwheel and Atomic:

We’ve recently added new partnerships to enhance our payroll data coverage. Across our entire income verification suite, we now have almost 100% coverage of the US workforce.  

Interesting!

For those who don’t know the backstory, Plaid initially got into the payroll data space back in 2021 with the beta product launch of its direct deposit switching service. That product was shelved not long after, and Plaid switched its focus to its income verification product.

Now Plaid is officially surrendering on automated direct deposit switching (which seems like a very natural complement to its OG account verification product), and partnering with its former competitors to enrich its payroll data for its income verification product.

Reading between the lines a bit, it would seem as though Plaid has been struggling to build sufficient data coverage in the payroll space and has (maybe) been left behind by its more narrowly-focused data aggregation peers.

I wonder how long Plaid, which seems to be all-in on value-added services like payments and ID verification these days, will stick it out with income verification? 

There are some serious competitors in the payroll API space focused on income verification (Argyle, Truework, etc.) and, of course, the 8,000-pound gorilla in the market – Equifax. Will Plaid keep fighting the good fight here (with help from Pinwheel and Atomic), or will Plaid Income be quietly phased out at some point?        

#2: Settle Gets In On The Fun

What happened?

Settle introduced a new suite of capabilities:

Purpose-built to streamline the challenge of purchasing and procurement, the new Settle Purchasing suite of tools automates back-office tasks like bill pay, purchase order creation, auditing, reporting and more. 

So what?

A few weeks ago, I wrote about the continuing convergence of product features in the spend management space, including the introduction of new AI-powered accounts payable offerings from Brex and Rho and a new procurement solution from Ramp.

In writing about the spend management space, I focus most of my time and attention on the bigger names – Ramp, Brex, Rho, Navan – but it’s worth taking a step back and looking at the broader picture.

There are so many different systems that impact, in one way or another, spend management within a company, from B2B payments to workforce management. Every one of those systems is under attack by disruptive startups, and all of those startups see the same vision that the Brexs and Ramps of the world see  – a unified orchestration layer for managing all of a company’s spending decisions.

Settle is a working capital provider for e-commerce businesses. It offers financing to companies to essentially extend the terms of their invoices in order to preserve and better invest their cash on hand.

I didn’t really think of Settle as playing in the spend management space (even though accounts payable is a major category of business spend), but obviously, it was, and, with this newest product launch, it is stepping into it even more so, providing a comprehensive dashboard for e-commerce companies to see, pay, and (if they want) finance their bills.    

#3: There’s No “I” in FCRA

What happened?

The CFPB is planning to crack down on third-party data brokers:

The CFPB plans to propose rules that would require data brokers — or any other company in the surveillance industry — be covered by the Fair Credit Reporting Act. The 1970 law strictly limits the use of credit report data from being sold for any reason other than what Congress has specified as having a “permissible purpose,” such as credit underwriting. The law prohibits the sale of data for advertising, training and artificial intelligence. 

Many third-party data brokers that collect, aggregate, sell and resell personal information are not currently covered by the FCRA, which mandates that credit reporting agencies and data collectors only collect and report accurate credit information. Individuals would have the right to obtain their data from third-party brokers and dispute inaccuracies. 

So what?

This is a big deal. The proposals being discussed would, if implemented, cause some major ripples:

One of the proposals under consideration would designate data brokers as credit reporting companies under the FCRA if they sell certain types of data including a consumer’s payment history, income or criminal records. The CFPB is considering whether to outlaw the sale of so-called “credit header data,” which is the portion of a credit report that contains an individual’s name, birth date, Social Security number, phone numbers and current and past addresses. Data brokers rely on credit header data purchased from the three main credit bureaus to create dossiers on individuals.

Preventing the sale of credit header data would be a blow to the bureaus. Over the years, they’ve found a lot of creative ways to slice and dice their data in different ways in order to maximize their revenue. Header data is a big one, and it would be painful to lose.

I’m also curious to see if the CFPB’s definition of data brokers includes the companies that are facilitating access to consumer data with consumers’ permission (i.e. Plaid, MX, Finicity, Pinwheel, etc.) While some of those companies have already voluntarily taken on the designation of being a “consumer reporting agency” subject to the FCRA, most of them have not and are, I imagine, strenuously opposed to the idea.

Finally, I have a small personal favor to ask the CFPB – it would be great if they could include in their rulemaking a requirement that no one is ever allowed to pronounce FCRA as “FICRA” ever again.

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2 FINTECH CONTENT RECOMMENDATIONS

#1: Plaid: Finance’s Next Great Network (by Mario Gabriele, The Generalist)

We’ve got a bit of a Plaid theme going in the newsletter today, so I figured we’d just lean all the way into it. This one from Mario goes deep into Plaid’s history, evolution, and path forward. Very much worth reading.

#2: An Inside Look at Starbucks’ Web3 Journey (by Raoul Pal, Adventures in Crypto)

Trust me, every fiber of my being tells me never to put anything with “Web3” in its title as a content recommendation in this newsletter, but … Starbucks has earned my trust. If they bought into the idea of Web3 and the use of NFTs in their outrageously successful customer loyalty program, they must have seen something. We should all try to see it too. 

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1 QUESTION TO PONDER

What’s your take on Robinhood? I’ll admit to being a bit confused. It’s now generating a profit, but monthly active users and a whole bunch of other important performance metrics are down, again. It’s simultaneously building products for sophisticated investors and passive wealth-building products like retirement accounts. It’s focused on cost-cutting, but it also just bought a credit card company and is spinning up a fancy new digital media brand. What are they up to?