Data aggregator Plaid on Thursday launched a new product that makes it faster for customers to change the destination of their paychecks, a feature it says will give financial institutions an edge in the highly competitive fight for customers’ direct deposits.
Plaid Deposit Switch, which is still in beta, automates direct deposit account funding for fintechs and banks that embed Plaid into their onboarding flow.
Plaid, which connects fintech apps such as Venmo, Chime and TransferWise to customers’ bank accounts, said the new streamlined feature will help companies lower their abandonment rate for online account opening.
As banks and fintechs compete to become the primary financial relationship for their customers, many tie their benefits, such as no-fee overdraft protection and early access to wages, to direct deposit.
But the friction associated with manually changing the destination of a direct deposit can prevent customers from following through, Ashley Cornall, product manager at Plaid, wrote in a blog post Thursday.
The average abandonment rate for online account opening is 19%, according to a 2019 Digital Banking report. A 2017 report by Javelin Strategy & Research found only 8% of successful account applications were completed from start to finish on a mobile device.
“High-friction onboarding experiences can lead to customer drop-off and inactive accounts — and can ultimately prevent banks from becoming a customer’s primary financial institution,” Cornall wrote. “Many users typically have to complete a bank-provided form to collect their new account details, and then bring that form to their employer. With a paper-based process, there’s little to no clarity around when their paycheck will start flowing to the new account, which can leave the user feeling anxious and perplexed.”
Cornall said the company’s instant switch method connects a user’s payroll or employer account directly through Plaid Link, and instant account funding is available for employees at large and small companies, as well as gig economy workers.
Plaid is also building a “fallback method” for users who aren’t able to employ the instant switch method.
Users can ask Plaid to contact their employer on their behalf to update their direct deposits, with no forms required, Cornall said.
Lili, a challenger bank targeting freelancers, and savings account app Yotta have been testing the platform as beta partners, Plaid said.
“Working with Plaid, we’ve made it faster and easier for customers to take the first step by establishing and funding their accounts with direct deposit,” Ben Doyle, co-founder of Yotta, said in a statement. “Yotta also integrates with Plaid Exchange, so customers can securely use their Yotta account with other fintech apps for digital payments, financial planning, investments and more.”
Plaid is also accepting new beta partners.
“Whether you are a bank providing users with better interest rates or a lending enterprise operationalizing your underwriting flow, we’re excited to partner with you,” Cornall wrote.
The launch of Deposit Switch comes as Plaid says it is turning its focus to serving its more than 11,000 bank and financial institution partners in the wake of its scrapped $5.3 billion deal with Visa.
The company, which last year launched Plaid Exchange, an application programming interface (API) platform to help smaller financial institutions compete with Wall Street banks, is committing to having 75% of its traffic dedicated to APIs by the end of 2021, John Pitts, Plaid’s head of policy, told Banking Dive last week.
The company is also focusing on international expansion, and plans to more than double its European workforce this year, according to CNBC.