The FinTech world is buzzing with news of Plaid buying Quovo. Hats off to Quovo’s founder, Lowell, who’s built an excellent reputation in the industry for innovation, professionalism and proprietary technology to enable screen scraping. We’ve received over a dozen inquiries from partners, investors and prognosticators on what the deal means, and, while we have no insider information, we have a few thoughts given our earlier blog series on screen scraping.
There are a few lenses to look at this deal as it relates to what it means to the FinTech space and why it makes sense. We’re going to break it down based on three factors: market structure drivers, systemic reasons and direct reasons.
Market Structure Drivers
The FinTech world is embracing APIs as the most effective way to interact between institutions, apps and developers — as PSD2 in Europe leads the way. Asian countries are already adopting API protocols. However, since the US has not developed a standard or unified protocol, we can expect more jockeying between screen scrapers and financial institutions, as we saw earlier this year with Plaid & CapitalOne. As long as the US doesn’t mandate standards, screen scraping companies are going to look to gain greater scale and leverage against the more fragmented financial institutions (when’s the last time you saw Citi, JPMorgan, Fidelity & Schwab join forces to protect customer data?).
With 40-70% of FIs website traffic coming from screen scraping companies providing access to Personal Financial Management apps like Mint, FIs have finally woken up to the need to provide secure, controlled access to their products in an increasingly unbundled and distributed world. FIs are going to require customers to use oAuth to ensure proper security and controls, but traditional US screen scraping companies don’t look favorably on oAuth due to the user experience. The Plaid/CapitalOne battle was a preview of things to come between screen scrapers and Fis, requiring scrapers to go through the front door, not the back.
If you’re in the screen scraping business and do a value chain analysis, you want to own your own destiny and technology. Screen scrapers exist for a simple reason: to make it easy for FinTechs to enable their clients or customers to aggregate their data in one spot. The screen scrapers create simple and easy to use APIs that customers can integrate and these APIs use screen scraping technology behind the scenes. The technology learns the layout, data formatting and access placements for thousands of FIs, which allows the scrapers to easily enable customers to share their credentials in order to gain entry into the FI. The FI is not a party to this access, it’s a back door. Not all screen scraping companies do this themselves. Quovo did it with robust and secure technology, as do Yodlee and Finicity who often provide their technology to other screen scraping companies like Plaid and MX.
Data security couldn’t be more paramount to FIs. As much as customers like to demonize banks, banks have done a lot more to protect customer information than big Silicon Valley tech companies. If your user name and password were breached by a portal, hotel company or social network in the last year, it’s likely that the user name and password combination was sold on the dark web. Bad actors on the dark web then run scripts testing your credentials against FIs to get access to your funds. And, while the Fis are proactively monitoring their front door, what many have found is that the bad actors run the scripts via sites using screen scraping to identify vulnerable accounts via the back door. Herein lies the rub. Screen scrapers don’t want to put speed bumps into the user journey, but FIs are requiring oAuth through the front door. Something has to give, and hopefully it won’t be caused by a breach of your financial information.
Plaid and Quovo were direct competitors with similar offerings which could lead to downward pressure on prices. Consolidation will likely allow the combined entity to test price elasticity. Yodlee was the Grand Daddy of screen scraping. Early on, Yodlee bought Vertical One for customers, pricing power and leverage. Yodlee is now owned by Envestnet who has publicly stated that they’ve been focused on making the acquisition pay, meaning they’re increasing prices.
Plaid stated that Quovo’s offering in the wealth space was a driving force for the acquisition. Yodlee and Morningstar® ByAllAccountsSM have a solid grip on the wealth space, however a combined Plaid/Quovo could result in a greater penetration. And, it doesn’t hurt that Quovo’s founder hails from a storied wealth management lineage, adding to his wealth sector cred.
Finally, the brands of Plaid and Quovo resonate differently in the broader financial space. Plaid is loved by Silicon Valley FinTechs and Quovo is well-regarded by the established FIs.
In sum, while the financial terms are not readily available, the strategic fit of Plaid and Quovo makes sense — leverage, scale, reputation and technology. Just as Yodlee’s founder stepped away last week from leading his company, the baton (and screen scraping team captain) is now with Plaid’s leadership — run fast and innovate often.