May 09, 2023
How real-time funding solutions are changing the face of open finance
Tearsheet Editor-in-Chief Zach Miller recently sat down with John Anderson, Head of Payments at Plaid. Anderson, who moved to Plaid from Meta in 2022, discusses how Plaid is helping companies build and support real-time funding solutions including Automated Clearing House (ACH) payments and real-time payments platform RTP® from The Clearing House.
Driving the conversation:
How Plaid powers over a billion ACH transactions each year with its payments expertise
The rise of real-time payment solutions in the US
Why banks remain at the forefront of innovation in open finance
Plaid powers over a billion ACH transactions each year. [4:00] With its deep expertise in powering payments and close relationships with both developers and customers, Plaid is supporting the user experience for payment use cases, including account funding.
Low transaction risk triggers faster ACH payments by companies. [5:40] Plaid Signal uses a machine learning engine to help customers determine when there is low risk of ACH return. As a result, customers no longer need to place holds on those funds in order to ensure they settle or to wait for settlement. That allows them to speed up funds availability.
“With better risk systems like Signal, we're effectively in a kind of synthetic way allowing our customers to make the ACH rail, which isn't fully instant, behave like an instant rail.” said Anderson.
Fintechs want a partner to help manage account connectivity and payment processing. [8:15] Plaid supports companies that want to use a single provider for both with Plaid Transfer. Plaid also partners with over 50 companies that process bank payments. These partners utilize Plaid’s authentication technology and their own payment processor to help their customers make ACH payments.
Embedded finance will drive the use of ACH payments. [8:45] US consumers have been slow to adopt pay by bank ACH transfers. ACH usage will grow with better risk systems and adoption of Buy Now, Pay Later (BNPL), prepaid cards, and other payment solutions. Over time this increase in ACH payments could take market share from cash payments, checks, and wire transfers.
Plaid co-develops with customers. [12:10] Plaid often collaborates with customers as it develops tools that improve the entire customer lifecycle. It worked closely with early-adopter Robinhood as it developed Signal. At the same time, Plaid is preparing for new payment innovations and future trends.
“What's kind of fun is you can sit down with our customers and have both these conversations: drive for optimization today, while also really experimenting on what we see coming around the corner with new rails,” explained Anderson.
Banks are spearheading open finance innovation. [15:15] Banks are looking to open finance to unlock more value for customers who are demanding greater connectivity. They’re especially focused on the areas of data and privacy. Plaid works with over 12,000 financial institutions in the US, Canada, the UK and the EU.
Real-time payments are gaining traction in the US. [19:30] These new rails are here but widespread RTP adoption is 3-5 years away. Plaid is helping customers navigate with tools like Instant Payouts within the Transfer product.