From partners to competitors: what Stripe’s latest move means for Plaid

Earlier today, payments giant Stripe announced a new product that fills in some significant gaps in its play to be the financial services layer for merchants and other businesses whose models are based on enabling transactions, as reported by TC’s Ingrid Lunden.

That new product is called Financial Connections and the company says it will give Stripe’s customers a way to connect directly to their customer’s bank accounts, to access financial data to speed up or run certain kinds of transactions.

If this sounds familiar, it’s because it is pretty much exactly what another fintech giant, Plaid, already does. And the move by Stripe positions the company directly against Plaid, a former partner.

A quick backgrounder for the unacquainted: Stripe was valued at $95 billion a year ago and now reportedly inching closer to an IPO. Founded in 2010 by John Collison (president) and his brother Patrick Collison (the CEO), Stripe saw the value of building a simple way for developers to integrate payments into any app or site by way of a few lines of code, at a time when digital and specifically online payments were starting to take off.

Plaid, which – as mentioned above – helps connect consumers’ bank accounts to financial applications, in April of 2021 raised a $425 million Series D at a valuation of $13.4 billion. The nine-year-old company made headlines last year when the deal it had struck to be acquired by consumer credit giant Visa for $5.3 billion fell through due to regulatory concerns – an event that many say turned out to be a blessing in disguise for the startup.

The tension now is that some people, including Plaid CEO and co-founder Zachary Perret, believe that Stripe may have used its relationship with Plaid to glean information on how to build this sort of product.

Both Plaid and Stripe declined to comment on the topic.

But in a tweet in response to Stripe PM Jay Shah’s own tweet about his company’s new product, Perret wrote: “Wow! Jay, you took interviews with Plaid & asked probing questions multiple times over the past few years, and your team sent repeated RFP’s (under NDA!) to us asking for tons of detailed data. I wish y’all the best with these products, but surprising to see the methods.”

Interestingly, Stripe’s new product is powered by Plaid competitors MX and Finicity. While some might argue that Plaid doesn’t own the open banking market, others appear to be more upset about the fact that Stripe may not have been transparent with Plaid about its intentions.

And while Perret is not talking to the media, he’s been pretty vocal on Hacker News about the differences between Plaid’s offering and what Stripe just released. In that exchange, he goes back and forth with an “Edwin” from Stripe on various aspects of what the two companies do.

The news is likely not a shock to Perret or Plaid because on March 29, he quoted a tweet from Patrick Collison regarding Stripe’s launch of its first ACH support product, saying only that it was “cool” to see that company’s announcement and that there was “lots to come.” Those updates to Stripe’s ACH Debit product were a hint of the news today considering that it was launched with the ability to instantly verify bank accounts, a feature that is competitive with Plaid’s Auth product.

The two companies were partners considering that at one time. On Plaid’s site, there are details of a partnership between the two companies to “offer frictionless money transfers without the need to ever handle an account or routing number.” The language there said:

Use Plaid Link to instantly authenticate your customer’s account and automatically generate a Stripe bank account token so that you can accept ACH payments via their ACH API. This guide is designed for those who already have a ACH-enabled account at both Stripe and Plaid. If that’s not you, head over to the Stripe ACH docs to get started. You’ll be able to sign up for a Plaid account from there.

No word on if that partnership is still in place. But in light of today’s news, even if it technically still is, its future appears on shaky ground.