Feb 06, 2019
The fintech consolidation is starting, at least in the financial data side of the business, with Plaid recently announcing an acquisition of Quovo, the startup that aggregates investment data.
With fintechs getting access to customers data residing at different banks and investment firms, the tie-up between Plaid and Quovo is seen as the early signs of the next wave of fintech disruption. These startups will not only help fintechs aggregate data but analyze it as well. That’s according to David Jegen, a partner at F-Prime Capital, an early stage venture fund based in Boston that co-led the Series B round of fundraising for Quovo. He said the industry has rapidly shifted from a time when no one beyond financial advisors gave much thought to aggregating all of a customer's’ financial data to it now becoming expected. Just ask a millennial who wants to easily access their data from their bank account on a mobile trading app.
“I believe the combined Quovo-Plaid will become the data access layer in the new financial services tech stack,” wrote Jegen in a recent blog post. “This merger is happening at the same time as authentication and aggregation move from a ‘nice to have’ to a ‘must have,’ and as we transition from building out the infrastructure to delivering analytics and insights. We are moving from Chapter 1 to Chapter 2, but it won’t stop there.”
The way Jegen sees it the fintech data industry is transitioning from being one in which the startups such as Plaid and Quovo help millions of consumers connect their financial accounts to financial apps to a time when they will help businesses analyze the data they have, adding more automation along the way. The venture capitalist pointed to Social Finance as one example. The online lender otherwise known as SoFi uses Quovo to estimate W-2 information for potential borrowers on its platform. Meanwhile, Stash uses Quovo to predict when is the best time to move money for a customer to avoid overdraft fees. “The surface area is wide and Plaid and Quovo should someday generate 3–4x more revenue from derived insights embedded into business workflow,” Jegen said.
But Jegen doesn’t think it ends there. In the third chapter of this story, the Plaid and Quovos of the world will help consumers control their data via what could amount to a digital dashboard. As it stands now if a consumer wants to know what banks, mobile apps and online lenders are doing with their data they have to visit each website, scour through the privacy settings to figure out what is being collected, shared and store. Arduous to say the least but something that is increasingly necessary in this data sharing world we now live and operate in. “You will see them play a more proactive role in helping consumers understand where their data is at any given time and to limit and revoke access,” Jegen said in a interview with Forbes expanding on his blog post. He said Plaid and Quovo are in a good position to do this on behalf of consumers, potentially becoming consumer brands themselves along the way.
While the future looks bright, it's not expected to be smooth sailing all the time for the likes of Plaid and Quovo, which have enjoyed strong growth and a lot of interest from venture capitalists. In December Plaid announced it raised $250 million in funding, bringing its total raise to $310 million. The round was led by Mary Meeker, the famed venture capitalist, giving it a market valuation of $2.65 billion. It reportedly spent around $200 million to acquire Quovo. The fintechs still have to contend with privacy and regulatory issues in the U.S. as well as the Open Banking initiative in Europe, which aims to create a centralized directory for banking data that is being shared. There’s also room for shake-up in the industry. It wasn’t too long ago that Yodlee was the clear leader in the data aggregation marketplace. The fintech startup was acquired by Envestnet for $600 million in 2015.
“I’m optimistic that the triad of regulators, financial institutions and data access providers will act sensibly and with consumers’ interests in mind. If so, the combined Plaid and Quovo has a tremendous future ahead,” Jegen said. “And if all goes well, in several years closing documents for company mergers will not require investors to submit their bank account numbers in writing…the final irony in the merger of the two leaders in digital account authentication.”
I believe the combined Quovo-Plaid will become the data access layer in the new financial services tech stack.
David Jegen, a partner at F-Prime Capital