Banking technology player Plaid announced Plaid Income this week, the company’s new income verification tool.

Income offers a secure and fast way to help consumers prove their salary in order to qualify for and secure loans, rent apartments, lease vehicles, and more. Lenders benefit from this data by being able to make better-informed risk decisions, issue pre-approvals or approvals faster, and allocate fewer resources to manually reviewing documents. 

Plaid places consumers in control of their own data by offering them the option to choose whether to share their data. With Income, they can opt to share their salary information by connecting to their employer account, payroll provider account, or by verifying their salary using documents such as paystubs, W2s, and some 1099s.

To help users connect directly with their payroll provider, Plaid supports real-time payroll authentication for over 250,000 of the largest employers in the U.S. The company is also developing credential-less authentication capabilities with leading payroll providers, including ADP.

The new Income tool is part of the Plaid for Payroll suite, which also includes the company’s Deposit Switch offering launched earlier this year.

Plaid’s income verification tool is similar to an offering from its competitor Finicity, which launched its Verification of Income and Employment solution in 2019. Among Finicity’s clients are Freddie Mac, Quicken Loans, and Experian.

Interestingly, Finicity was acquired by Mastercard late last year, just days after the U.S. Department of Justice filed a civil antitrust lawsuit to block Visa’s ability to acquire innovative fintech.

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Plaid’s newest product is sure to make consumers happy and large banks slightly terrified. The company is tapping the power of direct deposits for its new launch, Deposit Switch.

The new offering, which goes live in beta today, does exactly as it sounds. It offers financial institutions and fintechs a tool to help end consumers easily change which account their paychecks are deposited into.

Switching the destination of direct deposits is a hassle for consumers, and generally requires manual paperwork that has to change hands between their bank and employer. Deposit Switch aims to end this headache. The company is relying on its instant switch method that connects a consumer’s payroll account directly through Plaid Link, the quick-start method to integrating with Plaid’s API.

For end users, the direct deposit switch can be done in four steps, as illustrated below:

“For financial institutions, high-friction onboarding experiences can lead to consumer drop-off and inactive accounts—and can ultimately prevent banks from becoming a consumer’s primary financial institution,” Plaid noted in a blog post announcement. “A significant opportunity exists for expanded innovation that leads to better consumer outcomes. Plaid can help by building the infrastructure that bridges the gap between financial institutions and payroll data, starting with direct deposits.”

In addition to giving consumers more control over their financial lives, Deposit Switch could also be a boon for smaller financial institutions (FIs) and fintechs. That’s because Deposit Switch is a new tool for them to win over consumer deposits.

Generally, banks use a high interest rate, a one-time bonus, or an enticing gift to incentivize their clients to change their direct deposit. These options are costly, And for smaller FIs and digital banks especially, may not be feasible.

Many digital banks are having difficulty boosting their total assets under management in the first place. This is due to two reasons 1) consumers use them as an “accessory” bank while storing and depositing the bulk of their money in larger institutions and 2) Many clients that use a digital bank as their primary financial institution may not have as much net worth and/or don’t receive as high a salary as those who choose to bank with traditional FIs.

Yotta, a fintech app that helps users build their savings, is one of the fintechs beta testing Plaid’s Deposit Switch. “Working with Plaid, we’ve made it faster and easier for customers to take the first step by establishing and funding their accounts with direct deposit,” said Yotta co-founder, Ben Doyle. “Yotta also integrates with Plaid Exchange, so customers can securely use their Yotta account with other fintech apps for digital payments, financial planning, investments and more. Fintech is the new normal for most Americans and Plaid helps Yotta meet customers where they are.”

So what about large, traditional FIs? Should they be worried that fintechs are making it too easy for clients to pour their paychecks into competing accounts? The short answer: yes.

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