FinTech startup Plaid says having a clear picture of a consumer’s transaction data is critical to improving their access to better financial products. By cleaning and classifying transactional data and making it available on demand, Plaid creates a new vector for competition between banks that want to use data to provide better services.
Jean-Denis Greze, Plaid’s chief technology officer, believes data sharing is necessary today as people’s financial lives are so fragmented that it is impossible to get a complete picture of the consumer.
“At a high level, you’re like a mosaic,” Greze told Karen Webster of PYMNTS. “And today, fewer and fewer people have enough of this mosaic to offer great financial services.”
Financial services companies need a clear idea of what this mosaic looks like in order to deliver what consumers want in terms of credit, credit and other services, he explained.
“If someone wants to give you a loan, they have to understand your risk profile and how much you are making – those are sensible things,” he said. “Or if someone wants to help you manage your expenses, they’ll need to look at how much you’re making, what you’re spending, etc. to categorize and help you save money.”
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The big, messy picture
Banks already have a lot of transaction data, but these days you rarely have a complete picture. These days, people are much more likely to look for a mortgage and get a home loan from another bank than the one that pays their wages. That person may also have a small personal loan from another provider or app and a car loan from someone else. If that consumer is an hourly worker, they may get an advance elsewhere. You can even pay off by buying now, paying later installments from another company.
Not only is data scattered all over the place, it’s also often very messy, Greze said. A big part of what Plaid does is cleanse data and make it easier for banks and developers to put it to good use.
“To be honest, bank transaction data is just chaotic. There are thousands of financial institutions, banks, credit unions, multiple payment providers and networks – and their transaction strings are all different, ”he said. “The way banks identify merchants is different. It’s too messy to do anything useful, so one of the first things we do is to clean it up. “
Plaid spends a lot of time and goes beyond what most people would expect when it comes to data classification, noted Greze. For example, a consumer’s recurring transactions are identified as this is an important insight for any would-be loan provider. There is also a reconciliation model that can identify when a restaurant bill was paid separately from the tip and group them together as one transaction, he explained.
“You don’t want it to look like Karen spent $ 48 in a restaurant and then saw that she spent a total of $ 52,” he said. “You want to make sure it’s the same transaction.”
Build better tools
Greze said that Plaid uses machine learning tools from Amazon Web Services (AWS) to categorize transactions on a large scale, which in turn provides better information and insights in real time. Financial services providers can leverage this data to support use cases across their customer base, including personal finance management, tax returns, bank fee refunds, debit card rewards, and prepaid wages.
“We’re excited to address application-specific data-related needs and develop new tools and better abstractions that provide out-of-the-box insights for any scenario,” he said.
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Greze believes using data in this way will be beneficial for all parties and will encourage more competition between banks and fintechs by helping them find better ways to provide financial services to consumers.
“There is no executive at a major financial institution who doesn’t believe they need to find newer and better ways to maintain their place as the primary financial services provider to the consumer,” he said.
If not, one day they will likely wake up and find that they have become the smaller financial institution.
Data providers are becoming data consumers
Greze said banks can become both consumers and providers of Plaid’s transaction data. Banks can share their own customers’ data with others and in return they can access any information they don’t have – from mortgage providers and payday lenders to other FinTechs – to get a more complete picture.
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“We want every supplier and customer to be our data,” said Greze. “The supply side and the demand side are increasingly the same, and we really want to accelerate that.”
More than banks, he said, the challenge is to get consumers to let their data be used.
The plaid model is based on consumers giving their consent for a very specific purpose – knowing that their information will only go where they want it to go. “It’s not the bank’s data, it’s the consumer’s data,” noted Greze.
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