How Does Plaid Make Money? Plaid Business Model In A Nutshell

  • Plaid is an American financial services company founded by Zach Perret and William Hockey in 2013. The core product is a platform that enables users to connect their bank accounts to various fintech companies.
  • Plaid operates a freemium business model, where prospects can try the product in a sandboxed environment to get a feel for the platform.
  • For prospects that are ready to add increased functionality and test systems using real-world data, Plaid offers two paid plans: Launch and Scale. The latter is a tailored and fully integrated solution where prices start at $500/month.

Origin story

Plaid is an American financial services company founded by Zach Perret and William Hockey in 2013.

The core product is a platform that enables users to connect their bank accounts to various fintech companies.

Perret and Hockey met as young consultants at global management firm Bain & Company. Frustrated with the lack of transparency in the bills they were paying, the pair tried to create a financial planning tool.

The tool was a failure, but in the process of trying to develop it, they solved the technical challenge of connecting the app to their bank accounts.

At the time, most businesses depended on micro-transactions to verify customer bank accounts.

More cumbersome methods involved paper statements uploaded in PDF form with data entered manually.

To streamline this process, Perret and Hockey wanted to create an application programming interface (API) to perform the same function with only the username and password of the applicant.

While the platform was being constructed in 2012, a mutual friend who happened to be the head of engineering at Venmo showed interest.

The engineer was searching for a better way to link Venmoโ€™s peer-to-peer payment app with customer bank accounts and asked the pair if they would be willing to test their creation.

The experiment was a success, with validation from Venmo helping Plaid secure deals with other platforms hoping to emulate Venmo’s success.

Perret and Hockey then moved to San Francisco to recruit more engineers and pitch their idea to investors, but they were rejected at least 50 times.

In July 2013, they eventually secured a $2.9 million round of funding from Spark Capital. Four years later, Plaid boasted clients such as Robinhood, Wealthfront, Wells Fargo, Chime, and Chase.

Plaid became a tech unicorn in late 2018 with a $250 million round of funding valuing the company at $2.65 billion.

Recent figures show the platform now integrates with more than 11,000 banks connected to 200 million consumer accounts.

Plaid revenue generation

Plaid operates under the freemium business model, which means the core product can be accessed free of charge.

In the free plan, prospects can connect to 100 bank accounts and test sample data in a sandbox environment.

For extra functionality, there are two paid subscription options. Before we delve into these options, it should be noted that the companyโ€™s pricing strategy is not designed to make a prospect choose from a list of plans.

Instead, the strategy helps a new client become acquainted with the free platform before transitioning to a customized account that suits their needs.

With that in mind, here are the two paid plans:

  1. Launch โ€“ a pay-as-you-go option with the ability to authorize accounts and check transactions and balances. Prices are available on request.
  2. Scale (prices start at $500/month) โ€“ a more tailored solution with volume pricing, dedicated premium support, and integration assistance. Customers on this plan can also access detailed user data concerning their assets, liabilities, and investments. This data, for example, can be used to decide whether to approve or reject a loan application.

Ancillary fees

Once a customer has opted into a paid plan, several fees may be applicable:

  • One-time fees โ€“ these are charged for tasks that only need to be performed once. For example, a personal finance app will need to pay a one-time fee every time it authorizes a client account and verifies their identity.
  • Subscription fees โ€“ the same personal finance app may also want to understand how its members are spending their money. To do so, the company uses Plaid’s real-time account balance monitoring functionality. Since this is an action that occurs repeatedly, it is billed as a recurring subscription fee. Plaid charges for this service on a per-connection, per-month basis and offers volume discounts.
  • Per-request fees โ€“ Plaid also charges a flat per-request fee. If the personal finance app allows members to transfer money between accounts, they need to ensure the transferring account has enough funds to begin with. To facilitate the transfer, Plaid will check the memberโ€™s account on behalf of the app company and earn a fee. 

Main Free Guides:

Read More: How Does TD Ameritrade Make MoneyHow Does Dave Make MoneyHow Does Webull Make MoneyHow Does Betterment Make MoneyHow Does Wealthfront Make MoneyHow Does M1 Finance Make MoneyHow Does Mint Make MoneyHow Does NerdWallet Make MoneyHow Does Acorns Make MoneyHow Does SoFi Make MoneyHow Does Stash Make MoneyHow Does Robinhood Make MoneyHow Does E-Trade Make MoneyHow Does Coinbase Make MoneyHow Does Affirm Make MoneyFintech Companies And Their Business Models.

Related FinTech Business Models

Acorns Business Model

how-does-acorns-make-money
Acorns is a fintech platform providing services related to Robo-investing and micro-investing. The company makes money primarily through three subscription tiers: Lite โ€“ ($1/month), which gives users access to Acorns Invest, Personal ($3/month) that includes Invest plus the Later (retirement) and Spend (personal checking account) suite of products, Family ($5/month) with features from both the Lite and Personal plans with the addition of Early.

Affirm Business Model

affirm-business-model
Starting as a pay-later solution integrated into merchantsโ€™ checkouts, Affirm makes money from merchantsโ€™ fees as consumers pick up the pay-later solution. Affirm also makes money through interest earned from the consumer loans when those are repurchased from the originating bank. In 2020 Affirm made 50% of its revenues from merchantsโ€™ fees, about 37% from interests, and the remaining from virtual cards and servicing fees.

Alipay Business Model

how-does-alipay-make-money
Alipay is a Chinese mobile and online payment platform created in 2004 by entrepreneur Jack Ma as the payment arm of Taobao, a major Chinese eCommerce site. Alipay, therefore, is the B2C component of Alibaba Group. Alipay makes money via escrow transaction fees, various value-added ancillary services, and its Credit Pay Instalment fees.

Betterment Business Model

how-does-betterment-make-money
Betterment is an American financial advisory company founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman. Betterment makes money via investment plans, financial advice packages, betterment for advisors, betterment for business, cash reserve, and checking accounts.

Chime Business Model

how-does-chime-make-money
Chime is an American neobank (internet-only bank) company, providing fee-free financial services through its mobile banking app, thus providing personal finance services free of charge while making the majority of its money via interchange fees (paid by merchants when consumers use their debit cards) and ATM fees.

Coinbase Business Model

coinbase-business-model
Coinbase is among the most popular platforms for trading and storing crypto-assets, whose mission is โ€œto create an open financial system for the worldโ€ by enabling customers to trade cryptocurrencies. Its platform serves both as a search and discovery engine for crypto assets. The company makes money primarily through fees earned for the transactions processed through the platform, custodial services offered, interest, and subscriptions.

Compass Business Model

how-does-compass-make-money
Compass is a licensed American real-estate broker incorporating online real estate technology as a marketing medium. The company makes money via sales commissions (collected whenever a sale is facilitated or tenants are found for a rental property) and bridge loans (a service allowing the seller to purchase a home before the revenue from the sale of their previous home is available).

Dosh Business Model

how-does-dosh-make-money
Dosh is a Fintech platform that enables automatic cash backs for consumers. Its business model connects major card providers with online and offline local businesses to develop automatic cash back programs. The company makes money by earning an affiliate commission on each eligible sale from consumers.

E-Trade Business Model

how-does-e-trade-make-money
E-Trade is a trading platform allowing investors to trade common and preferred stocks, exchange-traded funds (ETFs), options, bonds, mutual funds, and futures contracts; acquired by Morgan Stanley in 2020 for $13 billion. E-Trade makes money through interest income, order flow, margin interests, options, future and bonds trading, and other fees and service charges.

Klarna Business Model

how-does-klarna-make-money
Klarna is a financial technology company allowing consumers to shop with a temporary Visa card. Thus it then performs a soft credit check and pays the merchant. Klarna makes money by charging merchants. Klarna also earns a percentage of interchange fees as a commission and for interests earned on customersโ€™ accounts.

Lemonade Business Model

how-does-lemonade-make-money
Lemonade is an insurance tech company using behavioral economics and artificial intelligence to process claims efficiently. The company leverages technology to streamline onboarding customers while also applying a financial model to reduce conflicts of interest with customers (perhaps by donating the variable premiums to charity). The company makes money by selling its core insurance products, and via its tech platform, it tries to enhance its sales.

NerdWallet Business Model

how-does-nerdwallet-make-money
NerdWallet is an online platform providing tools and tips on all matters related to personal finance. The company gained traction as a simple web application comparing credit cards. NerdWallet makes money via affiliate commissions determined according to the affiliate agreements.

Robinhood Business Model

how-does-robinhood-make-money
Robinhood is an app that helps to invest in stocks, ETFs, options, and cryptocurrencies, all commission-free. Robinhood earns money by offering: Robinhood Gold, a margin trading service, which starts at $6 a month, earns interests from customer cash and stocks, and rebates from market makers and trading venues.

SoFi Business Model

how-does-sofi-make-money
SoFi is an online lending platform that provides affordable education loans to students, and it expanded into financial services, including loans, credit cards, investment services, and insurance. It makes money primarily via payment processing fees and loan securitization.

Stash Business Model

how-does-stash-make-money
Stash is a FinTech platform offering a suite of financial tools for young investors, personalized investment advice, and life insurance. The company primarily makes money via subscriptions, cashback, payment for order flows, and interest for cash sitting on membersโ€™ accounts.

Wealthfront Business Model

how-does-wealthfront-make-money
Wealthfront is an automated Fintech investment platform providing investment, retirement, and cash management products to retail investors, mostly making money on the annual 0.25% advisory fee the company charges for assets under management. It also makes money via a line of credits and interests on the cash accounts.

Zelle Business Model

how-does-zelle-make-money
Zelle is a peer-to-peer payment network that indirectly benefits the banksโ€™ consortium that backs it. Zelle also enables users to pay businesses for goods and services free for users. Merchants pay a 1% fee to Visa or Mastercard, who share it with the bank that issued the card.

About The Author

Scroll to Top
FourWeekMBA