Plaid, a well-known company that connects customers’ bank accounts with fintech apps, is now expanding its services to provide real-time bank transfers. The updated Transfer service will allow businesses to disburse loan payments, insurance payouts, or wages instantly. Plaid has always helped businesses, particularly fintechs, move funds between bank accounts.
However, this product will now utilize the Real-Time Payments (RTP) network, which is a five-year-old money movement platform owned by a consortium of large US banks, making it possible for instant bank transfers. Prior to supporting RTP, all transactions occurred using the Automated Clearing House (ACH), which is a dominant system for bank-to-bank fund transfers in the US that typically takes one to three business days unless users pay a fee for a same-day or next-day transaction. Transfer can be used not just for disbursements but also for funding new accounts.
This updated service from Plaid could also benefit consumers who live paycheck-to-paycheck, helping them access their wages more quickly instead of waiting for the typical one to three days for ACH transfers to settle. Plaid hopes Transfer will be at the forefront of bank payments in the United States.
The service could potentially grow from its current set of uses, like insurance and wage payouts, to a broader set of occasions, like paying bills or merchants directly from a bank account, according to John Anderson, Plaid’s head of payments. If “pay by bank,” already popular in Europe and Asia, were to gain momentum in the US, it could divert consumers away from the card networks.
More consumers paying by bank would be a welcome change for merchants who have to pay Visa and Mastercard interchange fees every time a consumer swipes a card. Although the US has been traditionally card-based, if bank payments gain traction, consumer expectations could shift, and people might start demanding the ability to move money with a bank payment.
Analyst Questions Plaid’s Potential
While Plaid aims to bring bank payments mainstream in the US, industry analyst Tom Noyes is skeptical the company will be able to gain major traction. Noyes points to banks’ modernization efforts and launch of new products to compete with financial startups as a limiting factor for Plaid. For example, last year, JPMorgan Chase launched a product that allows customers to pay bills directly from their bank accounts in partnership with Mastercard. Noyes believes that the environment is changing with banks modernizing their APIs and making acquisitions to build Stripe-like interfaces for payment-as-a-service and banking-as-a-service.
In 2021, Visa canceled its plans to acquire Plaid for $5.3 billion after the US Department of Justice filed an antitrust lawsuit opposing the deal. The DOJ argued that the company was attempting to head-off an emerging challenger to its thriving card processing business. Despite merchants’ distaste for interchange, card acceptance fees paid to card networks and banks, debit, and credit cards remain popular in the US largely because of credit card reward programs and robust fraud protections.
Plaid Transfers instant payouts feature signals an increasing movement towards real-time payments in the US. In July 2023, the Federal Reserve plans to unveil its own publicly-run real-time payments network called FedNow.