Lessons for Indian FinTech from the Stripe vs. Plaid on Twitter ⚔️
The FinTech space can appear to be dry as a bone to an outsider looking in. But just last week, FinTech chroniclers found themselves reaching for the popcorn as the high drama unfolded between two name brands on Twitter.
US-based FinTech giants Stripe and Plaid sparred over the former’s launch of Financial Connections, its in-house data aggregation tool that will fetch financial information directly from customers’ bank accounts. To which Plaid CEO Zach Perret responded with the insinuation that Stripe had somehow copied their product after taking “interviews with Plaid & asking probing questions multiple times….”
Here’s how it went down (read the whole thread for the full picture):
Later, Perret deleted his response and tweeted, “Deleted tweet. Misunderstanding or different styles perhaps. Presuming positive intent.”
At a glance, it looks like competitors being competitors, right? But here’s the kicker – Stripe and Plaid have a history of partnership. This is what Plaid’s website has to say about it:
Stripe’s new product promises to “verify bank accounts for ACH Direct Debit”, a service it had outsourced to Plaid. Now, it has gone from simply being a payment services provider to a financial data aggregator.
In the US, financial account aggregators have been around for over a decade. And, they’ve been deemed quite a nuisance by legacy banks – visiting their websites, using customer credentials to login and scrape information, causing system slowdowns. This obviously also lent itself to data privacy vulnerabilities.
However, in 2018 several FinTechs, aggregators and banks banded together to form the Financial Data Exchange, an independent nonprofit focused on unifying financial services. The FDX is entrusted with ensuring secure access to ‘permissioned’ customer and business data through APIs.
Sounds familiar?
India launched a similar account aggregator framework in 2021 that regulates consent-driven data sharing among financial institutions.
Anyway, I’m not going to waste time preaching whether or not Stripe broke an unsaid code of honor - it’s hard to take sides on the matter. But it brings me to a more pertinent question - is the Indian FinTech space headed towards a similar brutal free-for-all?
Built for loftier ambitions
In the words of NITI Aayog CEO Amitabh Kant,
“DEPA builds the right infrastructure. It inverts the traditional Western model where data is simply used to advertise and sell products, to one where data can be used to empower a billion Indians. It can show a new India Way on data governance that allows us to offer inclusive and affordable financial products that help businesses recover from the crisis and chart a path towards sustainable growth.”
The underlying architecture supporting the account aggregator framework in India, the Data Empowerment and Protection Architecture (DEPA) is focused on data governance, while in the US, the data aggregation ecosystem remains more free-handed.
It’s only natural – while the FDX came about as a late reaction to the data security threat, DEPA has commissioned a forward-looking framework where each player of the financial data sharing ecosystem performs a scripted role with the common goal of user empowerment in mind. Moreover, DEPA functions along the tenets of the proposed Data Protection Bill and the RBI’s Banking Regulation Act.
In the American market, anyone can become an account aggregator. That’s why Stripe is now both custodian and user of financial data. With its existing valuation of $95 billion, its new data sourcing capabilities give it a strong moat that could easily crush competition.
In India on the other hand, one requires a special NBFC-AA license from the Reserve Bank of India to become an account aggregator. So far, only five entities have an operating AA license and five others have the RBI’s in-principle approval. AAs, or consent managers with a unique set of powers, are instituted by regulatory authorities.
Competition and innovation
This is not to say that regulatory oversight has quashed innovation or competition by simply showing each player to their designated seat at the table.
In fact, it’s quite the contrary. FinTechs that should fit the financial information user (FIU) bill are also finding workarounds to become account aggregators themselves. For example, Cred recently applied for an NBFC-AA license via its subsidiary.
Moreover, as predicted by the NITI Aayog, consensual data aggregation has, indeed, spawned a ‘Cambrian explosion’ of products and services. FIPs (banks and NBFCs) are seeking out ways to monetize the access to their data, and AAs are inventing on top of their core competency to one-up each other.
FIUs are dreaming up thousands of ways to integrate capabilities such public-private digital infrastructure into lending, wealth management, personal finance and more and offer better customer experiences.
For instance,
FinTechs can gain access to multiple bank and demat accounts in one place and visualize their expenditure, payment instruments and transaction dates.
Investors with similar interests can share their portfolios with an investment company through an AA and connect with one another.
Users can avail of robo advisory services for autonomous investments and banking.
Lenders can make cash flow-based lending decisions based on an analysis of customer financials.
Conclusion
So to answer my own question – I believe that the account aggregator framework has laid the regulatory groundwork with the necessary checks and balances in place. It has given financial data aggregation in India an architecture within which to innovate and compete closely. Such an ecosystem would result in a flooding of the market with new products and services, all vying for a piece of the pie without monopolizing.
Thanks to this delicate balance of regulation and innovation, the Indian FinTech tapestry won’t be restricted to stripes and plaid – but can incorporate a whole bevy of rich patterns.