This month, Dwolla invited our integration partner, Plaid, to provide insights on how developers can connect to the U.S. banking system to access user-permissioned data and build services that solve big problems. Eric Showen leads channel partnerships at Plaid.
Without a doubt, the U.S. banking system is complex—comprising of roughly 11,500 financial institutions from national banks to local credit unions that serve hundreds of millions of consumers and businesses. On top of that there’s an alphabet soup of rules, regulations and processes that make it daunting for most businesses to connect to the banking system.
To understand how we got here—and what’s being done to simplify the complexity—it’s helpful to get historical context on how consumers interact with financial services and their data. For developers, the recent evolution in digital financial services means that simple and secure access to financial data has become a staple of innovation. Consumers choose to share their data with financial apps of their choice; this infrastructure allows developers to build services that help consumers live healthier financial lives.
It’s why we are proud to partner with Dwolla, who believes that secure access to permissioned financial data can be vital to the success of any innovative, fintech company.
The evolution of the financial ecosystem
The U.S. banking system has transformed over the past few decades from brick-and-mortar branches to the rising popularity of online banking via web and mobile. Today we’re seeing even more change in the ecosystem, with consumers interacting with banks and their financial data through third-party digital applications. In fact, more than 100 million consumers1 rely on integrations with digital financial services that help them live their day-to-day lives. This includes apps like Venmo, Acorns and Robinhood that have become near-household names!
A recent survey from Ernst & Young Global Limited reported that U.S. consumer adoption of financial technology (fintech) has doubled from 2015 to 2017, with money transfer and payments leading the way as the use case.2 The most innovative financial institutions — large and small alike — are also seeing the benefits of ecosystem integrations through deeper engagement with customers.
At Plaid, we believe in democratizing financial services through technology and providing developers with the tools to create amazing products that solve big problems. This is why we partnered with Dwolla, to simplify the complexities of the U.S. banking system, allowing developers to easily combine Plaid’s APIs with Dwolla’s developer-friendly, ACH API integration.
We’ve already seen businesses like Astra and Tripcents thrive by connecting to the U.S. banking system using the Dwolla + Plaid integration. Sending and receiving funds are essential to most any business, and the innovation possibilities to help consumers do so efficiently are multiplied when combined with the full capabilities of Plaid’s infrastructure.
Using different types of financial data to deliver rich insights
Today, Plaid offers an easy way for consumers to connect their bank accounts to thousands of applications and digital services. Once a connection is established, developers can retrieve a consumer’s permissioned data to use in providing tailored insights and experiences for as long as a connection is maintained.
Beyond consumer payments, here are a few things developers can do today using consumer financial data shared through Plaid:
According to LendingTree, total consumer debt is projected to reach $4 trillion by the end of 2018.3 Financial app developers have the opportunity to use financial data to help consumers pay down their debt, save for a rainy day, and invest in their future. To do so, accessing and analyzing consumers’ dynamic transaction data is necessary to understand their spending capacity and habits. From there, an app can make recommendations on where to cut back on spending or how to set savings goal. But making sense of unstandardized transaction data coming from thousands of different banks can be challenging.
Plaid’s Transactions product gives innovators access to cleaned transaction data including categories, merchant names and geolocations. We take the work out of cleaning up the data so you can focus on delivering insights to help consumers manage their finances. Astra, the smart personal finance app, uses Transactions to display users’ spending data in real-time and help them set aside money towards a savings goal.
The lending industry has seen a gradual digital transformation in the last 15 years with the rise of peer-to-peer lenders and online loan applications. However, more can be done with using direct-source data to deliver a truly digital experience. For example, asking borrowers to upload bank statements to verify their asset history is cumbersome and time consuming. Instead, lenders can now access account balances and historical transactions directly from the source.
With Plaid’s Assets product, lenders get one consolidated report with current, available, and historical balances along with typically 24 months of transaction history. Plus, lenders can retrieve the transaction history as returned by the bank and categorized by Plaid. Using financial data from banks can help expedite the application process, while giving lenders the right information to make timely credit decisions. Companies like Lendstreet use Assets today in their loan applications to quickly access asset history for borrowers.
Whether it be for a savings account, brokerage, or debit card platform, moving money from a consumer’s bank account into an app or digital service can be complex. With brokerage, for example, consumers are more likely to begin investing if funds are deposited quickly. For developers and businesses offering a digital service, it’s about having the reassurance that consumers are the actual bank account owners they claim to be with sufficient funds.
Plaid’s Auth and Balance products solve for the account linking piece, by making it easy to authenticate bank accounts in seconds, verify real-time balances, as well as enable account pre-funding. And Plaid’s Identity product is widely used to help confirm account ownership. Combining these three products with Dwolla’s Me to Me payment capability offers businesses the most seamless way to transfer funds.
With more ways to connect to the U.S. banking system, providers of financial services are on track to see substantial user and business growth in the coming years. Plaid and Dwolla will be there to continue supporting developers and enabling innovation that will help even more consumers live healthier financial lives.
–Eric Showen, Channel Partnerships
1 Capgemini World Fintech Report, 2017
2 Ernst & Young Global Limited, EY FinTech Adoption Index, 2017
3 Lending Tree, Consumer Debt Outlook, 2018