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Payoneer To Go Public Via SPAC, Now Valued at $3.3 Billion

Payoneer To Go Public Via SPAC, Now Valued at $3.3 Billion
By Julie Muhn (@julieschicktanz) Posted on
Categories: Alumni News, Daily news, Mergers & Acquisitions, Payoneer, SPAC

Cross-border payments expert Payoneer is the latest fintech to go public via SPAC merger. The New York-based company has agreed to merge with FTAC Olympus Acquisition Corp.

The transaction is expected to close during the first half of this year.

Once the reorganization is complete, the newly created holding company will be renamed Payoneer Global Inc. and the combined company will operate as Payoneer, a U.S. publicly listed entity. After the deal is finalized, Payoneer will have an estimated value of $3.3 billion.

Payoneer was founded in 2005 and offers multi-currency accounts to marketplaces, sellers, freelancers, gig workers, manufacturers, banks, suppliers, and buyers. With a mission to “democratize access to financial services and drive growth for digital businesses of all sizes from around the world,” Payoneer helps users pay and get paid globally as easily as they do locally.

“Payoneer is at the forefront of the rapid, global shift to digital commerce across all sectors,” said Betsy Z. Cohen, Chairman of the Board of Directors of FTAC Olympus Acquisition Corp. “Its innovative and unique high-tech, high-touch platform positions Payoneer at the epicenter of some of the most powerful and enduring trends driving global commerce today. Its proven ability to facilitate the overall growth of e-commerce through capabilities such as B2B payment digitization, global risk and compliance infrastructure, and the enablement for SMBs to rapidly grow and scale sets Payoneer apart.”

Payoneer has raised $270 million from 18 investors including CBC Capital and 83North. Scott Galit is CEO.

Today’s news of Payoneer opting to go public via a SPAC merger echoes a larger trend. Lately, we’ve seen a rising number of tech companies, including Bank Mobile and SoFi, use SPAC mergers to go public. Benefits of the IPO alternative include a faster and cheaper process, no qualification threshold, and no IPO window.

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FinFirst Celebrates SuperApp’s Successful First Year

FinFirst Celebrates SuperApp’s Successful First Year
By David Penn Posted on
Categories: Alumni profile, FinFirst, Funding

Two years after its debut at FinovateMiddleEast, Kuwait-based financial services aggregator FinFirst is celebrating a 2020 that saw the company facilitate millions of dollars worth of financing applications since the launch of its financial services app last summer. The company, founded in 2015 by CEO Abbas Hijazi, unveiled a financial superapp that serves as a marketplace for banks and financial services companies to offer auto, personal, student, and healthcare loans, as well as credit cards and Buy Now Pay Later installment loans. FinFirst promises a secure and fast, 20-click application process that averages less than 10 minutes to complete.

FinFirst also announced this week that it has secured a total of $4 million in equity investment. The investors were not disclosed. Hijazi said the funding “demonstrates the level of confidence in the market for a product which is simply transforming the face of the financial services sector.”

Since it began offering services to the small business community in March of last year – just before the COVID-19 crisis hit – FinFirst has received $40 million worth of financing applications from SMEs. FinFirst also has received $7.7 million worth of consumer financing applications since it began offering consumer-based solutions in the fourth quarter of 2020.

The majority of FinFirst’s personal finance customers are pursuing consumer financing – approximately 60% – while auto financing represents the remaining 40%. The company reports a high 90% lead conversion rate on its superapp, making the platform an attractive option for FinFirst’s financial services partners.

“These first-year results stand us in good stead to build upon a solid foundation of strong business and consumer appeal, which is enhanced by the speed and ease of our digital application app,” explained FinFirst Chief Operating Officer Afrah Al-Hubail. She added that FinFirst plans to spend 2021 enhancing its offering, collaborating with financial services providers and fintechs, as well as forging more partnerships and adding new products.

Among the more recent alliances announced by FinFirst is its partnership with Kuwait’s Boubyan Bank. An Islamic digital bank with total assets of more than $17 billion as of 2019, Boubyan Bank has the National Bank of Kuwait as its major shareholder, and is regarded as one of the up-and-coming banks in the Gulf region. The institution’s CEO and Vice Chairman, Adel Al-Majed, was named Arab Banker of the Year 2020 by The Union of Arab Banks.

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InvestCloud Becomes Fintech’s Newest Unicorn

InvestCloud Becomes Fintech’s Newest Unicorn
By Julie Muhn (@julieschicktanz) Posted on
Categories: Daily news

Wealth solutions platform InvestCloud announced it is now valued at $1 billion, making it a new fintech unicorn. The new valuation comes after the fintech restructured its debt and equity in a recapitalization.

“At a valuation of $1 billion, we can reward early investors in the business, while injecting new capital to fuel the next stage of our growth, further supporting our clients’ needs,” said InvestCloud Co-Founder and CEO John Wise.

Comprising a major portion of the recapitalization, Motive Partners, Clearlake Capital Group, and other InvestCloud client shareholders have agreed to acquire 80% of InvestCloud. As part of the deal, Motive Partners will contribute two portfolio businesses into the firm. The first is Finantix, which it acquired in 2018, and the second is Tegra118, which is a newly-formed company resulting from Motive’s acquisition of Fiserv’s Investment Services business.

InvestCloud expects the addition of Finantix and Tegra118 to solidify its presence in the wealth and asset management marketplace. After the restructuring, InvestCloud will have $4+ trillion in assets on its platform and revenues over $285 million, with a team of over 900 people. Moreover, Finantix and Tegra118 will boost InvestCloud’s presence in and knowledge of continental European and Asian markets.

“Together with Cheryl [Nash of Tegra118] and Christine [Mar Ciriani of Finantix] and their exceptional teams, they enable us to accelerate our plans to build platforms serving the main markets in global wealth and asset management, each utilizing the proven SaaS design principles, architecture and data models of the InvestCloud platform,” added Wise.

InvestCloud will use the expertise at Finantix and Tegra118 to offer four staple platforms and a marketplace:

  • Wealth Advisor Platform – With its existing skillset, InvestCloud will build upon its background in North America, the U.K., continental Europe, and Asia.
  • Private Banking Platform – Leveraging Finantix, InvestCloud will offer an international private banking platform. 
  • Custom Financial Platform – Using InvestCloud’s design-first methods and AI Programs Writing Programs, clients can build unique intellectual property to create cloud solutions.
  • Financial Supermarket – Using the Tegra118 product, InvestCloud will build an international financial supermarket to connect asset managers to wealth managers.

Logistically, John Wise will remain CEO of InvestCloud, while Rob Heyvaert will continue as Chairman. Tegra118’s Cheryl Nash will become the CEO of InvestCloud’s Financial Supermarket division and Finantix’s Christine Mar Ciriani will become the CEO of the Private Banking division.

InvestCloud was founded in California in 2010. The company has raised $54 million from investors including JP Morgan Chase and FTV Capital.

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Visa to Enable Cryptocurrency Trading

Visa to Enable Cryptocurrency Trading
By David Penn Posted on
Categories: Cryptocurrency, VISA

For those still waiting for greater institutional endorsement of digital assets, the news that Visa will enable cryptocurrency trading on its network should come as a welcome sign.

Visa CEO and chairman Alfred Kelly announced the plan in an earnings call last week. Kelly noted that not only would Visa allow buying and selling of cryptocurrencies on its platform, but also that the company was “uniquely positioned” to do so, and to do so safely and securely.

Visa’s plan is to divide digital assets into two categories: cryptocurrencies and digital currencies. Cryptocurrencies, per Kelly, represent the “digital gold” of the digital asset market insofar as they are not typically used as a form of payment. For these assets, Visa plans to work with wallets and exchanges to allow users to buy these currencies using their Visa credentials. Visa also plans to enable users to cash out of their cryptocurrencies onto a Visa credential to make fiat-money purchases wherever Visa is accepted globally.

With regard to digital currencies, Visa defines these assets as “fiat-backed digital currencies including stablecoins and central bank digital currencies.” These assets, per Kelly, could find use cases in global commerce “much like any other fiat currency” and could run on public blockchains as additional networks much like RTP and ACH rails.

Kelly noted that Visa already has a strong relationship with 35 digital currency platforms and wallets, including BlockFi and BitPanda. These partnerships, Visa claimed, represent potentially more than 50 million Visa credentials – a significant size advantage over the company’s rivals. “And it goes without saying,” Kelly added, “to the extent a specific digital currency becomes a recognized means of exchange, there’s no reason why we cannot add it to our network, which already supports over 160 currencies today.”

Visa’s positive news on cryptocurrencies comes on the heels of the company’s announcement that its planned $5.3 billion acquisition of fintech infrastructure provider and fellow Finovate alum Plaid is now off the table. Visa is an alum of both our Finovate conferences, making its Finovate debut at FinovateSpring ten years ago, and participating in our developers conference, FinDEVr Silicon Valley, four years later in 2014.

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Robinhood Raises $3.4 Billion in Whirlwind Weekend Funding

Robinhood Raises $3.4 Billion in Whirlwind Weekend Funding
By David Penn Posted on
Categories: Daily news

It looks like the Merry Men of Ribbit Capital have come to the rescue of the social trading app named after the mythological bowman who robbed from the rich to give to the poor.

Between the final trading days of January and the first trading day of February, Robinhood has raised a whopping $3.4 billion in convertible debt financing. The financing was provided to help the brokerage firm manage the tidal wave of activity that the platform experienced during last week’s trading moshpit in shares of heavily-shorted GameStop.

And with the additional participation from Little Johns and Friar Tucks like Iconiq Capital, Adreessen Horowitz, Sequoia, Index Ventures, and NEA, it looks like the social trading app for Millennials has more than picked up the requisite funding to continue its mission of serving its increasingly active trading and investing clientele. Note that Robinhood CEO Vlad Tenev said the company’s clearing house initially had requested $3 billion in margin deposits last Thursday, before lowering the requirement by more than 75% to $700 million.

“This funding is a strong sign of confidence from investors and will help us build for the future and continue to serve people through the exponential growth we’ve seen this year,” Robinhood’s blog read on Monday morning.

With more than 13 million users – and an alleged 600,000 new accounts added on Friday alone – Menlo Park, California-based Robinhood has become the face of retail trading in recent months. The company raised more than $1 billion in funding last year as a stimulus-fueled stock market – and an absence of opportunities for other financial-risk taking such as sports betting – helped drive short-term traders into the gamified, regular Joe-enabling, environment of Robinhood. The online trading and investing platform offers the ability to buy and sell stocks, exchange-traded funds (ETFs), options, gold, and cryptocurrencies including Bitcoin, Ethereum, and Dogecoin – all commission-free.

“We’re witnessing a movement of everyday people taking control of their own financial future, many investing for the first time through Robinhood,” the blog post continued. “With this funding, we’ll build and enhance our products that give more people access to the financial system.”

As the frenzy in trading over Gamestop shares grew, Robinhood came under pressure for its decision to restrict trading in the shares, as well as in a number of other stocks that had experienced similar spikes in activity. Although Robinhood’s actions were clearly permissible given its Term of Agreement, the episode further fueled the Us (retail trader) vs Them (Wall Street hedge fund) narrative that, ironically, Robinhood was founded to champion on behalf of the “Us.”

Ribbit Capital Managing Partner Micky Malka spoke to this irony in his comment about the funding. “Robinhood has served millions of people who have felt left behind by America’s financial system,” Malka said. “We’re confident that Robinhood will emerge stronger through this phase of growth and unprecedented demand.”

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January’s M&A Fintech Landscape

January’s M&A Fintech Landscape
By Julie Muhn (@julieschicktanz) Posted on
Categories: Mergers & Acquisitions

When analysts predicted what would happen in the fintech sector after the pandemic hit last year, one of the top forecasts was that the industry would consolidate. That is, companies that had an adaptable business model and were fierce enough to fight would get bigger, while other companies would seek exits or sometimes fold altogether.

The economic crunch from the pandemic isn’t the only thing boosting M&A activity. We’ve seen a rising popularity of using a special purpose acquisition company (SPAC) instead of an IPO to go public. With these two forces boosting deal flow, we saw seven mergers and acquisitions announced last month:

This is quite a boost compared to last January when we saw only four M&A deals. In the next couple of months before the summer slowdown occurs, we can expect to see more M&A deals in the headlines. Keep an eye out specifically for two types of deals. First, SPACs are becoming a more legitimate option for a company to make a public debut. Second, digital bank acquisitions will increase as last year’s explosion of players in the digital banking space begins to deflate to a more sustainable level.

I would be remiss if I didn’t mention Visa’s attempted acquisition of Plaid. Visa formally announced its intentions to take over Plaid for $5.3 billion. The acquisition fell through, however, after the U.S. Department of Justice filed a civil antitrust lawsuit to block the deal.

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Through the Pandemic and Beyond: Overcoming Data Management Challenges in Capital Markets

Through the Pandemic and Beyond: Overcoming Data Management Challenges in Capital Markets
By Charlie Burgess Posted on
Categories: Sponsored

The below is a sponsored post, from Gold Sponsors of FinovateEurope Digital 2021, InterSystems.

The COVID-19 crisis has thrown a spotlight on the inefficiencies underlying many functional areas of financial firms and caused executives to reevaluate operational resilience in light of increasing volumes and volatility. There’s been a lot of industry discussion about the potential of Machine Learning and Artificial Intelligence (AI) to tackle challenges ranging from regulatory change management to improving the client experience.

AI has huge potential to augment and transform current market practices, but organizations need to make sure they are laying the groundwork for successful implementation by considering the underlying data infrastructure required to turn these technology ambitions into reality.

In this white paper, Firebrand Research discusses how to tackle the complex issue of data management and shares key reasons to invest in a smart data fabric, including:

  • Building the data foundation for next-generation initiatives
  • Enabling a firm to adapt to volatile markets via real-time analytics
  • Connecting and harmonizing data on demand from across a firm’s many silos
  • Keeping firms out of the regulatory hot seat by ensuring high data quality
  • Providing accurate and real-time insights and new innovative services to keep ahead of the competition

Read the full whitepaper here >>

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Payshield Leverages Visa’s Verifi to Fight Chargebacks

Payshield Leverages Visa’s Verifi to Fight Chargebacks
By Julie Muhn (@julieschicktanz) Posted on
Categories: VISA

PCI-DSS innovator PayShield announced a partnership with Visa’s Verifi, a chargeback protection suite solutions provider this week.

PayShield selected Verifi to bolster its Express Resolve chargeback prevention solution in the Asia Pacific (APAC) region. Australia-based PayShield is leveraging Verifi’s dispute management tools that offer pre-dispute management solutions for chargebacks. Specifically, Verifi offers a three-pronged approach, allowing merchants to prevent disputes, resolve disputes, and inform the parties involved.

“PayShield has invested an incredible amount of time, effort, and resources into developing and testing our unique API and we are thrilled to be able to offer our ‘Express Resolve’ product to APAC merchants in partnership with Verifi,” said PayShield CEO Daryn Griggs. “Through the PayShield and Verifi relationship, merchants benefit from a global pre-dispute coverage that enables them to identify, resolve, and respond at unmatched velocity, which in turn, delivers higher successful resolution rates and greater cost savings.”

PayShield’s implementation is a timely one, as many merchants and services have had to move their sales online. This increase in card-not-present transactions has increased the potential of fraudulent activity in online purchases. Integrating Verifi’s dispute management tools offers a holistic solution for PayShield’s merchant clients, ultimately helping them land higher win rates, reduce manual reviews, and boost profits.

Founded in 2005, Verifi was acquired by Visa in 2019 for an undisclosed amount. Today’s deal marks Verifi’s first Australia-based partnership. “Extending global coverage by creating meaningful relationships with partners is important for us to enable sellers and issuers to benefit from pre-dispute solutions and evolve the chargeback process to enhance the cardholder experience,” said Verifi CEO Matthew Katz.

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Neobanks in South America; Swedish Payments Firm Trustly Eyes $11 Billion IPO

Neobanks in South America; Swedish Payments Firm Trustly Eyes $11 Billion IPO
By David Penn Posted on
Categories: EyeVerify, Finovate Global, Nubank, Trustly

Earlier this week we reported on the $400 million Series G closed by Brazilian neobank – and Finovate alum – Nubank. The firm, founded in 2013 and based in Sao Paulo, serves more than 34 million customers in Brazil, Mexico, and Colombia, and offers a digital savings account, a no-fee credit card, as well as personal loans. This week’s investment boosts the company’s total capital to $1.2 billion and gives the Brazilian digital bank a valuation of $25 billion.

We also suggested that Nubank’s news was a good opportunity for fintech fans to “brush up” on fintech in general when it comes to Latin America – and the region’s challenger banking industry in specific. To this end, for this week’s Finovate Global Reports, we are sharing this look at neobanks in South America, courtesy of Fintechnews Switzerland.

“South America has seen an exceptionally dynamic evolution of its neobanking landscape,” the authors wrote, “with now more than 30 live neobanks and digital banks that serve over 50 million customers out of the region’s 430 million+ population (+11%), data from Dutch fintech consultancy firm Fincog shows.”

An Overview of South America’s Booming Neobanking Sector is a great way to get to know how and why challenger banks are finding fertile ground in countries ranging from Brazil and Colombia to Peru and Argentina.

Swedish payments company Trustly, which made its Finovate debut back in 2013 at FinovateEurope in London, is betting that even after a year that featured a record number of initial public offerings, the investing public is hungry for more.

Reuters reported earlier this week that Trustly is planning an initial public offering in Q2 of this year that could earn the company a valuation of $11 billion (EUR 9 billion). Nordic Capital, which acquired Trustly in 2018, is said to be working with Goldman Sachs, JP Morgan, and Carnegie, with additional banks to be brought onboard as well. According to Reuters, the company is targeting “late April or early May” for an IPO. Both Trustly and Nordic Capital have not commented on the IPO rumor.

Headquartered in Stockholm and founded in 2008, Trustly specializes in enabling payments directly from customer online bank accounts. Trustly processes more than four million payments a month and reported revenues of EUR 130 million in 2019. The company estimates 2020 revenues of EUR 200 million. Trustly has more than 7,600 bank partners and 600 million consumers in Europe and North America who rely on its account-to-account network to bypass the card networks simply and securely.

In 2019, Trustly merged with PayWithMyBank, a U.S.-based company, to provide what Trustly CEO Oscar Berglund called “the first and only online banking payments network with transatlantic coverage.” Berglund added that the union of the two firms was “transformative” and said it would “accelerate” Trustly’s goal of reaching global coverage.

“Together we’re thrilled to be able to offer merchants and billers a unique alternative to card payments, allowing them to accept payments from 600 million consumers across Europe and the U.S.,” he said.

Earlier this month, Trustly announced the appointment of new Group Chief Financial Officer Mats Backman. Backman comes to Trustly after a tenure as CFO at publicly-traded automotive technology company Veoneer. Last fall, the Swedish payments innovator added a number of executives to its ranks, including Karim Ahmad as its new Global Chief Technology and Product Officer. Ahmad was formerly the Chief Product and Transformation Officer at Paysafe Group.

Here is our look at fintech innovation around the world.

Latin America and the Caribbean

Asia-Pacific

  • EyeVerify, which twice won Finovate Best of Show awards for its biometric authentication technology, may be on the market after being acquired by Ant Financial in 2016 for $100 million.
  • Malaysian-based supply chain finance and P2P financing platform CapBay raises $20 million in Series A.
  • Robowealth, a fintech based in Thailand, secures Series A funding from Beacon Venture Capital, Kasikornbank’s corporate VC arm.

Sub-Saharan Africa

  • Mobile banking startup Spot Money launches in South Africa, billing itself as the country’s first open banking platform.
  • Kenya-based Safaraicom goes live with its M-Pesa bill management service.
  • Synthesis launches Halo, the first of its kind tap-on-phone contactless payment solution for the African market.

Central and Eastern Europe

Middle East and Northern Africa

Central and Southern Asia

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The Commodification of Payments Platforms

The Commodification of Payments Platforms
By Julie Muhn (@julieschicktanz) Posted on
Categories: Guest Post

The following is a guest post by Sandeep Sood, CEO of Kunai.

Last year, Facebook announced that all Whatsapp users in India would be able to send payments using India’s Unified Payments Interface (UPI).

UPI was responsible for 2 billion payments in India during the last month alone. It makes it possible for Indians to pay each other seamlessly, regardless of the platform or bank account they are using. Add 400 million Whatsapp users to this system, and you have the most powerful payment solution anywhere in the world.

You also have the blueprint for the future of payments. In my view, that future is a delightfully simple one, in which universal payments solutions are an inevitability, with or without government standards like UPI;

The story in India is instructive. Before UPI, Softbank and Alibaba-backed Paytm had spent years and millions of dollars building and marketing proprietary digital wallets. UPI has made their solutions irrelevant overnight.

Today, proprietary wallets and payment platforms around the world are attempting to build moats through features and network effects. Yet, there is an obvious ceiling to what people want from their payment solutions…and the reality is that “pay anyone quickly” captures almost everything customers want.

When competing payment solutions reach feature parity, the only thing left are network effects. This means that each solution will have a choice: join a universal standard or fade into obscurity, like Paytm in India. The vast majority will choose to join a universal standard, which means they will become easy to replace.

This is a great outcome for economic growth and FinTech innovation. It is also fertile ground for the upcoming currency revolution. Universal payment solutions will also accept any form of currency with a large user base, be it the US Dollar, the Chinese Yuan, Bitcoin, or Central Bank Digital Currency (CDBC). The currencies of the future won’t compete based on their network effects, but rather more important attributes, such as their monetary policy. This is good news for currency innovations like Bitcoin.

As a FinTech newbie in 2013, I was surprised to find conferences, websites, and companies dedicated exclusively to ‘payments’. I was ignorant to the fact that payments were still generally clumsy and cumbersome…and that they required so much infrastructure and resources to do well. I’m looking forward to a future where the innovation is happening at a level far beyond the enabling of payments.

Sandeep Sood is the CEO of Kunai. He’s been building quality agencies that attract quality teams in order to build quality products. He sold his first agency, Monsoon, to Capital One in 2015.

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Brazilian Challenger Nubank Hauls in $400 Million

Brazilian Challenger Nubank Hauls in $400 Million
By David Penn Posted on
Categories: Alumni News, Daily news, Finovate Global, Funding, Nubank

Followers of Finovate Global, our weekly look at fintech innovation around the world, are likely familiar with the story of Brazilian challenger bank Nubank. But with news of the firm’s $400 million Series G round – announced today – we suspect there will be quite a few fintech fans brushing up on the fintech industry in Latin America.

Company founder and CEO David Velez said that the funding will help Nubank grow and diversify its client base, as well as fuel expansion. He added that bringing more products to market is key to becoming the kind of “full service financial institution for clients” that Latin American consumers need. Nubank currently offers a digital savings account, and a no-fee credit card, as well as personal loans. A recent acquisition of Brazilian broker Easyinvest last fall, Nubank’s third of 2020, suggests that investment products also may soon be among the challenger bank’s offerings.

Headquartered in Brazil’s largest city São Paulo, NuBank has earned a valuation of $25 billion with its latest investment. The Series G was led by GIC, Whale Rock Capital Management, and Invesco, and featured participation from existing investors Sequoia Capital, Tencent Holdings, Dragoneer Investment Group, and Ribbit Capital. The investment more than doubles Nubank’s previous valuation, based its July 2019 funding. The funding also takes the company’s total capital to $1.2 billion and places Nubank among the top five financial institutions in the region.

Nubank serves more than 34 million customers in Brazil and Mexico, and recently expanded to Colombia. The company is part of a growing neobank movement in the country – and the region – that is taking advantage of the inefficiencies of incumbent banks. This, in fact, was a major motivating factor for Velez, as he explained last fall announcing the move into neighboring Colombia.

“Nubank was born out of the conviction that through technology, design, data science and a customer-centric vision we could create a new generation of financial services that make people’s lives easier, with no complexity and no bureaucracy,” Velez said last fall. “All Latin Americans deserve a more simple, transparent and human banking experience. Today, I’m proud to announce the arrival of Nubank in Colombia, my motherland. Our goal is to have a positive impact in the life of millions.”

Founded in 2013, Nubank participated in our developers conference, FinDEVR New York in 2016. At the event, Nubank co-founder and CTO Edward Wible and Principal Software Engineer Lucas Cavalcanti dos Santos led a presentation titled, “Our Money, Our Rulebook,” that explained how they build an in-house accounting system based on functional programming principles. For the past two years in a row, Nubank has been named by Forbes magazine as the Best Bank in Brazil, and Fast Company has dubbed Nubank the “most innovative company in Latin America.”

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In the Battle for Direct Deposits, Plaid Stands with the Little Guys

In the Battle for Direct Deposits, Plaid Stands with the Little Guys
By Julie Muhn (@julieschicktanz) Posted on
Categories: Alumni News, Daily news, Plaid

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:

deposit switch flow

“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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