But things have been breaking nicely for Plaid during the COVID-19 crisis, which has let the company really charge.
Plaid, which is based in San Francisco and has more than 600 employees, charges financial apps for a service that helps consumers verify and connect their bank accounts, a key step for moving and managing their money. It also, controversially, pulls transaction data from those newly connected accounts and sells insights based on that information.
Plaid’s surfer-in-chief describes the customer base as a series of waves.
“The first wave is the core fintech companies — the Robinhoods, the Venmos, the Squares, the Chimes,” he said, noting how these “early fintechs are getting more and more successful.”
“The second wave [composed of] banks and financial institutions are rapidly moving to digitize. … The third wave are the Googles, the Apples, the Lyfts, the Teslas. Everybody is moving towards building digital financial services.”
“We’re riding all three of those,” he added. “If anything keeps me up at night it’s making sure that we continue to kind of scale the business.”
Sager admits that, as a surfer bro, he can be an intimidating presence at the beach.
“I’m 6’8″, I have a 10-foot-board and my family has a history of skin cancer, so I go out there with a hat,” he told Protocol. “So all the little kids that are surfing always make fun of me. But once I’m on the wave, all the short boarders get out of the way.”
Plaid’s latest charge is toward payroll data. On Thursday, the company unveiled a new product that would make it easier to verify employee income for different financing needs, including securing a loan, applying for a mortgage or leasing a car.
Plaid is supporting real-time payroll authentication for more than 250,000 of the largest employers in the U.S., which the company estimates makes up to 60% of the total working population.
“It was something we heard a lot from customers who were being asked to verify income and so forth,” Sager said. “Every single lending customer we have would love to have this information for the exact same reason that it makes the onboarding flow easier.”
Melody Brue, analyst with Moor Insights & Strategy, said the new offering could “open up so many possibilities for employers, lenders, neobanks — pretty much everyone in the fintech ecosystem.”
“Access to payroll data can change the way lenders look at underwriting and servicing loans and significantly cut costs and time spent on verification,” she told Protocol.
‘A blessing in disguise’
It’s Plaid’s first major product rollout since the collapse of merger talks with Visa. Brue called the scuttling of the deal “a blessing in disguise” after Plaid saw stronger demand for its infrastructure in the COVID-19 crisis. The company, which has raised $310 million in funding from investors that include Goldman Sachs, Citi Ventures and Visa, was last valued at $5.3 billion. That has reportedly jumped to $15 billion following the collapse of the Visa deal.
But Plaid’s latest product offering, she said, will also likely make it more of a target: “This will likely be seen as a threat to financial institutions, as they already fear security issues from open banking and now may fear losing customers.”
Plaid emerged as a powerhouse by providing banks and financial startups real-time access to consumer financial data, such as bank and investment accounts. Plaid, whose services integrate with 11,000 financial institutions, has more than 4,000 customers, including Square, PayPal, Robinhood, SoFi and Affirm.
But Plaid has taken fire for the way it manages financial data. “Plaid has irritated a lot of the banks,” Logan Allin, managing general partner and founder of Fin Venture Capital, told Protocol. “You heard Jamie Dimon saying Plaid’s playing dirty, right?”
He was referring to the JPMorgan Chase CEO’s remark on a call with analysts calling out “people who improperly use data that’s been given to them, like Plaid.” Dimon’s remarks came despite a 2018 agreement the companies signed that they said would “protect customer data.”
Plaid also faces a class action lawsuit filed by a consumer, accusing the company of using deceptive and misleading data practices.
“Imagine there is a company that knows every dollar you deposit or withdraw, every dollar you charge or pay to your credit card and every dollar you put away for retirement, within hours after you make the transaction,” the lawsuit filed on behalf of California resident Logan Mitchell began. “Imagine that, as far as you know, you never provided your username and password to this company or otherwise authorized it to access your online accounts.”
The lawsuit argued that Plaid “acquired its mountain of consumer data by deceiving consumers into giving Plaid the key to their financial lives: their bank usernames and passwords.” It accused the startup of committing “fraud by erecting a sophisticated edifice of deceit to trick users into thinking that they are logging into their financial institutions, when in fact they are turning over their credentials to Plaid.”
Sager declined to comment on the lawsuit or Dimon’s remarks. But he said Plaid has built features meant to give consumers control over their data. “If you’re a consumer, you can log on to a dashboard, you can see every single connection you’ve ever made, you can permission and un-permission that information.”
Debate over data access
However, critics, including some fintechs, argue that Plaid does not offer enough clear and convenient opportunities for consumers to opt out of having their data accessed. Yves-Gabriel Leboeuf, CEO and cofounder of Flinks, a Plaid rival based in Montreal — it’s been called the “Canadian Plaid” — would not comment directly about Plaid, but he said consumer consent in fintech data aggregation is a serious issue.
“The bad data practices that we’ve seen in the market are practices where there will be an ongoing aggregation of the data on a daily basis, without having expressly giving the consent to do so,” he told Protocol. “Our thesis is that that’s not Flinks’ data, that’s the consumers’ data. And we have no right to use that data, unless it’s clear that they are giving us that right.”
Steve Smith, CEO of Finicity, another Plaid rival which was recently acquired by Mastercard, also emphasized the need for “full transparency” in the way consumer financial data is accessed. He stressed the importance of “bringing down the walled garden of data, but doing it in a very responsible way.”
“I can’t speak to Plaid’s specific data governance policy or Yodlee’s specific data governance policy,” Smith told Protocol, referring to another major data aggregator which has also been sued for its data collection practices. “Clearly, I think you’ll find differences between the three organizations and the way they view data or the way they approach this conversation.”
Sager stressed that making all that data accessible to banks and fintechs has been a game changer for many consumers. “A lot of the innovation fintech is helping address is suddenly people are getting products that they previously weren’t able to get,” he said.
His views were shaped by an unusual career. Born and raised in Germany, he moved to the U.S. as a high school exchange student. He had hoped to go to California or Hawaii, for the surfing spots, but the program sent him instead to Mississippi where he also went to college.
His first job after graduation was with Capital One. He was part of a team at the credit-card issuer that ran tests to evaluate the effectiveness of direct mail campaigns. “What’s the difference in response rate if the letter is blue versus pink versus white?” he said. “What’s the difference in response rate if the font on the APR is 10 points versus 12 points? There’s just nothing we didn’t test.”
That included the unorthodox, and legally dubious idea, of putting a dollar bill inside promotional mailers. That didn’t sit well with Capital One’s management, who promptly told them to shut it down.
“Well, I didn’t put it in there myself,” Sager said of the dollar bill scheme, laughing. “The results were good, but it’s obviously not the kind of thing you want to be doing at scale so we shut that down. It was my first job. I was 22 and it was probably not the best judgment call.”
He subsequently got an MBA from Harvard before working at Bain. He then plunged into the fintech world, first as head of sales at Square, then as chief revenue officer at BlueVine, a small business-financing startup. [Disclosure: This reporter worked with Sager at BlueVine.]
When he joined Plaid as COO in 2019, it was a challenging transition. Plaid was six years old, and still growing quickly. He was the new guy, and he didn’t want to screw things up.
For the first time in his executive career, Sager said, he was leading a team that he didn’t help build from the ground up. He was used to being one of the most experienced people in the room.
“I was used to saying, ‘Hey, I built this. I actually was there when we built it from zero to one or from one to two,'” he said. “Suddenly, you’re in a world where it’s already at 10. It was already a big, successful company. Suddenly, you’re in a situation where you’re going literally all day long talking to somebody else and they know way more, but they’re still looking to you as if you should have some unique insight. It will make you feel dumb very quickly.”
Charley Ma, who was a growth manager at Plaid when Sager joined the startup and is now a general manager at Alloy, remembered him as an effective leader. “He’s very German, very direct, which I like,” he told Protocol.
Brue of Moor Insights & Strategy said Sager has become instrumental in “driving the company” in the direction of “actually democratizing finance. The company is giving people access to financial services they’ve previously been excluded from.”
That approach was influenced by Sager’s early years in the U.S.. His first credit card after moving to the U.S. from Germany had an APR of roughly 30%, he said. “I just didn’t have a good credit score because I just had never been part of the U.S. system,” he said. “Don’t get me wrong. Nobody should feel sorry for me. I had a good job and I could find other ways of doing it.”
“But think about how many people in the U.S. aren’t in that position — they don’t have the history, they can’t get loans or they have to get really really expensive loans. You’re in a bad cycle. You’re trying to take care of your family. You’re forced to take high-interest loans. Now you have to work to pay off the high-interest loans and before you know it, you end up in a very negative spiral.”
Fintech is helping fix this, he said. Broader data access is making it possible to offer better financing to more consumers, including those who may not have what’s traditionally considered stellar credit. “At the end of the day right, better data means better underwriting,” Sager said.
In fact, having more data could have improved the work he did at Capital One, he said: “If we just had some of the data that we now have, we would have been able to make much better decisions. We would have been able to offer people much lower rates.”
“It’s not impossible” for a consumer to provide more data then or now, he said. “The other version 10 years ago would have been you asked for all the bank statements, I go print them out, I put them in the mail or I go go to the office and drop them off and you work through all that. It’s not like it couldn’t be done, but it’s about removing the friction.”
Sager acknowledged that data access has become a “flashpoint” in financial services. Banks and other traditional financial institutions have been resisting calls to make consumer data they collect and hold more accessible to new financial players.
Leboeuf, the Flinks CEO, said it’s a debate in which his company and others are aligned with Plaid: “I do think that the best approach is driven by Plaid and Flinks because ultimately we are working for the best interests of the applications and the consumers.”
Sager echoed that view, saying: “At the end of the day, it’s the consumer’s data. Whoever you’ve been banking with, it’s your data and you should have the same rights to that data digitally as you would if you were to print out your bank statement, if you wanted to use that to get a car loan, if you wanted to use that to input that information manually into an Excel spreadsheet so you could do your budgeting — whatever it is, it’s the consumers’ data.”
It’s the view Sager hopes will prevail as Plaid gears up for that swell on the horizon. Will Sager get a clean ride — or will Plaid find itself locked in?