Hi guys, Michael here. I’m an MBA student at Berkeley Haas, aka Zoom U, and I’m originally from (and currently in) London!

I'm obviously interested in the fintech space, hence why I'm here, and have experienced fintech on both sides of the pond. I was formerly in wealth management, investing in emerging market debt, so if you ever want to geek out on that, hit me up on Twitter. And you could say I'm pretty excited to be reporting more on what is going on in the burgeoning fintech scene in Europe for Fintech Today.

Pre-covid you could find me enjoying long walks, hikes, snowboarding and spin classes. Now you’ll mostly find me on lockdown inside reading. Looking forward to connecting with everyone, and I hope you enjoy my first official post for FTT. It’s about a company all of us know well, but aren’t as familiar with its presence in Europe: Plaid.

With the acquisition of Visa off the table, attention has turned back to Plaid and what its plans are. Post the announcement of the breakup, the company has been talking up its European expansion with UK Head Keith Grose saying “We are still by developers, for developers. What has changed with our expansion to Europe is the growth of our brand awareness.”

So what exactly is Plaid up to in Europe and what competition does it face?

While the US and Europe have a lot of similiarities, there are a ton of differences that make this market very different from Plaid's business in its home market.

There are currently two major products within the open banking framework in Europe, namely AISP and PISP. An AISP is an “Account Information Service Provider” which provides, as the name suggests, account information as an online service on one or more accounts held by a user. PISP is “Payment Initiation Services Provider” and is a company that provides an online service to initiate a payment at the request of the user. The term “TPPs”, or Third Party Providers, is used generically to refer to both AISPs and PISPs.

Unlike in the US, where Plaid faces less competition, Europe already has four experienced players. It also differs from a technology perspective, since in the US, financial data access currently depends a lot on screen scraping technology as the primary means of data collection. In lieu of regulation like Open Banking or PSD2, the majority of financial institutions do not have the resources to stand up APIs, and those with the resources are just beginning to do so. It's worth noting that Plaid is transitioning to primarily API-based access and has signed data sharing agreements with Wells Fargo and JPMorgan Chase. More agreements are likely to follow.

In the UK and Europe, since PSD2 regulation came into force in 2018, screen scraping capabilities have been heavily restricted and the banks were given two options. Either implement dedicated APIs or implement an identification layer to allow the third party e.g. Plaid, to identify itself. Although heavily restricted, screen scraping is still allowed for non-PSD2 regulated information such as deposits, loans, pensions, shares and investment funds unless banks choose to offer an API that is better. Most large banks took the direct API route, so any integration with them has to be done via an API call. This means that Plaid faces a different technical challenge as well as a more competitive market.

Existing fintech infrastructure players, meanwhile, have multi-year headstarts. All have marquee customers and range in size from 70 employees to over 350, dominating Plaid’s current ~35 in Europe. Although all are registered to provide payment initiation services (PIS) and account initiation services (AIS), there are some differences in their approach.

YAPILY

Yapily recently made additions in the C-suite with Martin Threakall coming in as COO and Ian McDougall as CCO as it scales up. Ian brings a depth of experience from his time at Stripe, Google and IBM whilst Martin comes from payments fintech Modulr. The hiring combined with the customers Yapily has onboarded, Amex and GoCardless specifically, suggests they are more focused on the PIS market than AIS.

TRUELAYER

Truelayer is also focused on the PIS space and recently announced their PayDirect product which allows instant payment and withdrawals through one-click registration and verification, cutting out card networks. It has attracted marquee clients Revolut and Freetrade and claims that 50%+ of UK open banking flows through its services.

BUD

Bud was one of the original companies in the space and made the pivot from consumer facing fintech to a B2B platform. Although the company has been quiet on the fundraising front for nearly two years since their Series A, they have backing from major banks Goldman Sachs, HSBC and ANZ (HSBC is also a marquee customer). Bud looks to be attacking the AIS market which is helping companies unlock customer data and build useful tools and insights on top of this data. Bud powers fintechs such as Wealthify, who feature heavily on their website as well as PensionBee, AJ Bell and Hiscox.

TINK

Tink is the largest and best capitalised among the Plaid competitors with a $800M valuation in December 2020 after having raised a total of $250M. With more than 350 employees globally, Tink boasts PayPal, Klarna, NatWest, ABN Amro, BNP, Nordea and SEB among its customers. PayPal and ABN Amro are investors alongside RBS, Dawn Capital and Insight. Yapily isn't the only one to be hiring from Stripe, as Tink lured former head of EMEA banking Rafael Plantier to be its UK and Ireland head.

Like Bud, Tink is also positioning itself in the AIS space as it looks to help companies build products and features on top of account information. Such value add services include actionable insights, cash flow forecasting, enhanced credit reporting, goals and budgeting, proactive price comparison and income verification. Tink has also been aggressive in making three acquisitions in 2020, acquiring OpenWrks, Instantor and Eurobits. Eurobits is a Spanish account aggregation company which expands Tink’s geographical presence further in Europe and Latin America and greatly increases the banks its customers can access. Instantor is a credit decision tool helping banks and fintechs to make credit decisions, adding another layer of intelligence on top of data. OpenWrks is an account aggregation platform for consumers and notably SMEs to help with cashflow transparency. OpenWrks powered MyBudget, Money Coaching and Tully and adds business use cases to Tink’s suite of solutions.

MAIN TAKEAWAYS

While there is a lot of focus on the PIS space, this seems like a commodity product that requires scale and will see pricing driven lower by competition. It’s unclear over the long term if a business can be built solely around PIS. Whilst AIS typically provides only the access to data, it is the aggregation and enrichment of this data that provides the most promise for companies to create a sustainable long term business.

There is also a divergence in the types of customers that each company is going after. Focusing solely on fintech startups is a high risk strategy due to their high rate of failure. Although they may be quick to acquire and onboard, they may not get off the ground. Yapily and Truelayer seem to be most at risk here, although each does have one or two established customers. Providing infrastructure to established banks and larger fintechs is a more stable business which Tink is targeting. Bud has HSBC as a client and is working with its First Direct brand but it is unclear how this is going as Bud has been rather quiet on the communication front.

With the funds Plaid has raised and is likely raising after the collapse of its Visa acquisition, as well as the size of the open banking pie, I would expect it to continue to make inroads and add to its existing partnerships with Curve and Cleo.

While optimistic on Plaid’s future abroad, International Head Keith has admitted to initial struggles in Europe. Longer sales cycles, technical challenges and a different regulatory landscape are all hurdles for these types of businesses. Not to mention, Europe has 27 member states with different languages and regulations, presenting 27 unique challenges in and of itself. But while these hurdles won't go away, Plaid now benefits from a growing brand, a reputation amongst developers, and technical chops. Not to mention, the opportunity is huge if done right, with ~1.5x the population of the US. That's probably why Plaid decided the rewards outweigh the risks when giving Europe a shot.

Have thoughts on this? Is there something I missed? Let me know! Otherwise, I'll see you guys again in a few weeks when I dive into my next European fintech topic.