BankTechFintech

Building the “Plaid for Payroll”

Plaid claims it will be “the next frontier for fintech and open finance”

Building niche companies on the inspiration of unicorn startups is nothing new. For decades VCs have been pitched, “We’re building the Uber for auto repair,” “We’re building the Google for grocery shopping,” “We’re building the Facebook for programmers.” (all real pitches, and today… real companies.) Investors like this. They can see the vision. They can see the $100 billion TAM. They can envision the unicorn IPO. 

And recently we started hearing the question, “Who is building the Plaid for payroll?” – frequently….

VC firm a16z (also known as Andreessen Horowitz) published an entire research report on the promise of payroll APIs which dissects the payroll API space and includes the outlook for specific players. VC Fan Wen categorized a whole segment of pitches as “Plaid for Payroll” in a recent Medium article about learning from top VCs in 2020. Fintech investor Mengxi Lu shared some humor on Twitter reflecting the exuberance (and group think) of founders pitching “Plaid for Payroll” to VCs. 

Accelerated by COVID-19, Plaid in April pushed a payroll tool to market to help SMBs share payroll data with their bank in an effort to shorten the Paycheck Protection Program (PPP) application process. This got press. But for some reason the question, “Who is building the Plaid for Payroll?” persisted. 

On Nov. 12, 2020 Plaid made its checkmate move and dropped a white paper that answers the question. Plaid is, in fact, the company building the Plaid for Payroll. 

In a company blog post by Ben White (who works in Plaid’s Policy R&D unit) writes that, “Payroll providers store critical data about consumers, including information about their income, employment, identity, retirement contributions, and benefits. As consumers continue to adopt fintech, giving them control of their payroll data presents the next opportunity to advance fintech innovation that can help improve consumers’ financial lives.”

He adds that “Payroll companies are recognizing the role data access plays in Americans’ growing fintech use, and are increasingly adopting their own data access strategies. Plaid is engaging with major payroll providers to work towards improving consumer-permissioned payroll data access. Providing secure and reliable payroll data APIs will allow developers to enhance lending and benefits products for consumers and can help companies to offer stronger financial benefits programs for employees.”

The previously mentioned a16z report does a good job of explaining why sharable payroll data matters – to both developers and consumers. 

“If we think of a consumer’s balance sheet in the way we would a business’s, then payroll is the “revenue” side of the equation. To date, this data has only been visible to financial service providers in a peripheral way—income data isn’t available on credit reports and is only directly visible to a consumer’s primary bank. This data is important because it gives visibility into a consumer’s spending potential or “ability to pay,” while most other measures of credit focus on “willingness to pay.” Both Jeff Bezos and your grandmother may have a 760 FICO (indicating their “willingness to pay”) but have very different incomes (their “ability to pay”).”

The Plaid Whitepaper

The Plaid whitepaper opens with:

“Plaid pioneered the revolution in consumers controlling their financial data. Now we’re expanding consumers’ ability to share their payroll data, to provide even more financial control.”

So this isn’t a product announcement. It doesn’t read that Plaid is in the market with a payroll API solution, and they do not give guidance on a launch date. But it is a signal to all of the startups and VCs gunning to be the “Plaid for Payroll”. Plaid sees payroll data as the next critical leg of a true open finance ecosystem and they are working toward solving the problem for developers and consumers. 

To illustrate the impact on developers and entrepreneurs, Plaid outlines three use cases featuring Steady, Petal and OppLoans. Petal CEO Jason Gross is quoted as saying, “By quickly verifying employment and income, electronic access to portable payroll data can help consumers establish their creditworthiness, unlock better financial products and services, and save time and money. Maybe even more exciting, this kind of payroll data access could power new financial products and services that could improve consumers’ lives in ways we haven’t even thought of yet.”

It is clear that fintech companies are built on the ability to access  consumer-permissioned financial data that enables digitizing manual processes and providing customized solutions. Payroll data is critical in this evolution. 

Meanwhile, DOJ scrutiny of Visa’s planned $5.3 billion buy of Plaid is ongoing.

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