3 Fintech News Stories
#1: Plaid/Experian
What happened?
Plaid and Experian are partnering on cash flow underwriting:
Today, Experian and Plaid announced a strategic collaboration to lower barriers to accessing cashflow solutions and expanding financial inclusion. Now, banks, credit unions and consumer lenders can leverage Experian and Plaid’s combined expertise in real-time cashflow data and credit analytics to accelerate decisions, sharpen risk assessments and improve borrower outcomes.
When a consumer consents to share cashflow data from their bank account during a loan application, a Consumer Report is generated on their behalf by Plaid’s consumer reporting agency — and then securely delivered to Experian via a seamless integration. Experian analyzes the data and returns a predictive Cashflow Score or set of Cashflow Attributes to the lender in near real time.
Consumer Report provides up to two years of historical data and the latest cashflow data from more than 12,000 financial institutions. Backed by the largest open banking data network — powering 7,000 apps and services — Plaid enriches and analyzes over 500 million transactions daily with proprietary machine learning and AI-powered categorization specifically for lending.
Experian’s Cashflow Score provides up to a 25% lift in predictive performance when compared to scores using conventional credit data. The score ranges from 300 to 850 and can be used to make decisions across credit cards, personal loans, auto loans and more.
So what?
This is big news! And more proof (if you needed it) that the cash flow underwriting rocket ship has reached escape velocity.
I have a few takeaways:
- As I have written about multiple times, Experian is clearly uncomfortable with the idea of acting as the FCRA-regulated consumer reporting agency (CRA) when cash flow data is used to make a credit decision. It’s not that they couldn’t. In cash flow underwriting, you have three essential jobs: gathering the data (data aggregation), assembling the data (and taking on the attendant responsibilities under the FCRA), and helping lenders analyze the data and make a decision (using attributes, scoring models, and credit decisioning systems). Experian isn’t an open banking data aggregator, but it could still act as the CRA if it wanted to (Nova Credit does this). Experian doesn’t want to. It only wants to help with the third job, acting as the “technical service provider” and assisting lenders in making decisions based on the data (using its Cashflow Score and Cashflow Attributes). This is notable. Experian understands the risks of operating as a CRA better than anyone. It clearly sees some downside here that others don’t.
- This is a win for Plaid, which has been on a tear when it comes to partnering in this space. In addition to Experian, Plaid works with Prism Data, FICO, Meridian Link, Taktile, and Fannie Mae, among others. The strategy is clearly “be available everywhere that lenders might want to access cash flow data,” which is very similar to the distribution strategy perfected by the big three credit bureaus over the last couple of decades. Under normal circumstances, the concern with Plaid’s approach would be that much of the value would accrue to providers higher up in the stack (e.g., attribute calculation, scoring, decisioning) and Plaid’s position would end up becoming somewhat commoditized. However, we are not operating under normal circumstances. With the CFPB poised to vacate its own open banking rule, the data access layer of the cash flow underwriting stack is anything but commoditized. If the rule does indeed get tossed out, Plaid’s dominant position in consumer-permissioned data aggregation (the Experian press release specifically mentions that Plaid is “used by 1 in 2 U.S. bank account holders”) may end up being a sustainable competitive moat.
- This is a loss for Finicity (now owned by Mastercard) and FICO, which were the enabling partners for Experian’s first foray into cash flow underwriting (Ultra FICO). Finicity has been actively embracing the CRA designation for years, well before Plaid changed its tune on that subject. That’s what gave it the opportunity to win early pilot projects, such as Ultra FICO. However, as the old saying goes, being too early is the same as being wrong. Additionally, I just haven’t seen many signs in recent years that Mastercard is pursuing open banking opportunities with the same aggressiveness that Finicity exhibited before the acquisition (Mastercard has also lost some notable Finicity OGs in the last few years). And FICO? Well, that’s a whole essay in and of itself.
#2: Trustly/Verizon
What happened?
Trustly and Verizon expanded their partnership:
Verizon has been leveraging pay by bank and open banking for several years. Customers have been able to pay their wireless or internet bill with their bank account as a one time payment, or more commonly by enrolling in autopay using Trustly pay by bank. Trustly worked closely with Verizon to design a user experience that makes it easy for customers to choose their bank, sign in, and make the payment.
But in a new development, last month, Trustly and Verizon have collaborated to bring pay by bank to the telecom giant’s brick-and-mortar stores.
So what?
As I wrote about back in March, if you think about pay by bank solely as a mechanism to lower payment acceptance costs, you’ll end up missing some tricks.
When Verizon originally introduced pay by bank for recurring bills, its motivation was also to create a marketing advantage over its peers:
For years, Verizon has offered a discount of $10 per line when you sign up for paperless billing and agree to pay with a debit card or bank transfer. This offer is incredibly compelling (the savings I get across the multiple lines on my plan more than compensate me for the credit card points I am forgoing), and it’s a smart investment for Verizon because it saves them money (on both paper bills and credit card interchange fees) and gives them a significant marketing advantage in a highly competitive industry (i.e., they can advertise their plans at a lower price because the $10/line discount is conditionally available to all customers). It’s this combined cost savings and marketing benefit that justifies the size of the discount, which wouldn’t be justifiable based on cost savings alone.
You need to always use a wider lens when analyzing pay by bank news, including this latest Verizon brick-and-mortar announcement.
Sure, getting some portion of Verizon customers paying for new devices in-store with their checking accounts rather than with their credit cards will save Verizon some money, but the larger, more strategic value is in creating a unified payment and onboarding experience that bridges brick and mortar and e-commerce. Here’s the PYMNTS article again:
[Attie] Muse [senior director of payment strategy and operations at Verizon] offered the scenario where customers walk into a Verizon store, and while interacting with a sales rep, are “in control” of the phones’ set up and billing. When it comes time to transact, they can do so on their devices (rather than presenting a separate card) through the Trustly widget that enables them to enroll in pay by bank.
The one-step nature of the enrollment removes friction from the process that had historically occurred when Verizon customers paid with a card in-store, missed out on the autopay discount and then had to go online or through the Verizon app at a later time to enroll in autopay with bank funding.
#3: Klarna/Visa
What happened?
Klarna announced a new card product, powered by Visa’s Flexible Credential:
Klarna unveiled the pilot launch of Klarna Card: a new debit product combined with access to built-in flexible payment options, powered by Visa Flexible Credential and issued by WebBank. Unlike traditional credit cards that can see consumers incur additional debt and interest charges, the Klarna Card will allow consumers to pay immediately or pay later when needed – online or in-store – at more than 150 million Visa-accepting merchants worldwide.
With over 5 million consumers already on the waitlist, the Klarna Card is the boldest step yet toward Klarna becoming an everyday spending solution in the U.S. The card comes with an FDIC-insured wallet, which allows consumers to store money and make real-time transfers, and deposits, and integrates directly with the Klarna Pay in 4 and Pay Later options—all in one seamless experience.
So what?
A debit card with built-in pay-in-4 and pay-later functionality? Are they white labeling Affirm?
I’m just kidding!!
However, it does strike me as interesting that Klarna has taken several more years and undergone many more product iterations to arrive at the same debit card + BNPL construct that Affirm has been steadily developing since 2021.
Klarna first launched a physical debit card in Sweden in 2018, followed by Germany in 2019. In 2021, it launched one-time virtual cards (tied to individual BNPL loans) globally. In 2022, it took an updated version of the physical card to the UK, followed by the U.S. The design and functionality of this version of the card were really weird, as I wrote about at the time:
You make a purchase with the card, of any amount, and it automatically gets split out into 4 payments. You do this over and over again until you have a whole bunch of payments all due at different times (like when you use Klarna’s pay-in-4 BNPL product!) But then, the magic – the card automatically rolls up all those payments and consolidates them into one bi-weekly payment, which you can make via a linked debit card. The card has a $3.99 monthly fee (waived for the first year) and merchant rewards, which you get for completing unspecified “missions”.
I honestly don’t get the Klarna Card. What’s the virtue of splitting every payment into 4 installments only to rebundle those installments back into 2-week repayment cycles? Isn’t that just a credit card with a shorter repayment cycle and a $50 annual fee and substandard rewards?
In 2024, Klarna launched a credit card with similar pay-later functionality built into it (split any purchase into 4 installments, pay at the end of the month, convert bigger purchases into longer-term installment loans, etc.), which seemingly replaced the weird 2022-era card.
And now we’ll have this new Klarna debit card, which is basically identical to Affirm’s hybrid debit/BNPL card.
The difference, of course, is that Affirm already has roughly 2 million active cardholders, plus a number of intriguing distribution partnerships. By contrast, Klarna claims to have 5 million consumers on a waiting list, a number that I’m not terribly confident in, given the company’s propensity for puffery.
I don’t know who will ultimately win in this corner of BNPL land, but it’s clear to me which company got off to the better start.
2 Reading Recommendations
#1: The Global Fintech Report (by BCG & QED Investors) 📚
For the past couple of years, this has been one of my most anticipated annual reports. This year’s edition is packed with great data and insights on the state of the market.
The overall vibe, based on 2024 data and an outlook for 2025, is decidedly optimistic, which is a nice change from the last couple of years.
#2: Is It Chime’s Turn To Shine? (by Boaz Sobrado, Forbes) 📚
Really great thoughts on Chime in this article from Boaz. I found the lending portion of the analysis and comparison to Zilch particularly thought-provoking.
1 Question From The Fintech Takes Network
There are a TON of interesting questions being asked in the Fintech Takes Network. I’ll share one question, sourced from the Network, each week. However, if you’d like to join the conversation, please apply to join the Fintech Takes Network.
I’m turning the tables this week: What questions do you have for me?
On Thursday, I am hosting the June edition of Fintech Office Hours, my Plus Members-only virtual event where I get together with other fintech and banking nerds and talk about what’s going on and ask the questions that are keeping us up at night. If you have any questions you’d like me to add to the list for Thursday, please let me know by replying to this email or DMing me in the Fintech Takes Network!
