1:57:20 And you know we've been talking about different banking methodologies for transferring money, particularly when it comes to the show. We have Zelle, Z-E-L-L-E. There's a couple others. But the main one that I think we were talking about over the past two shows was Venmo. Venmo and people seem to be paying bills with it and Venmo is a really big deal. And our security producer called me and said, I have to tell you what's going on here. And by coincidence, a whole bunch of news around this company comes out. Not Vemmo, but the company Plaid. P-L-A-I-D. Have you ever heard of Plaid, John? Plaid? No. So I'll spoil... actually, I'll play the intro.
1:58:09 And then I'll explain what they're doing. It's a three-part, three clips here. Plaid is a company that sits in between your bank and your app that you're using. And I can tell you up front, almost any app that deals with money is using this company Plaid. It makes sense, it's an MSA. What's MSA? Microservices Architecture. It is, but it's quite macro in what it does and what it's actually doing is really mind-blowing and it's very... Very important that we understand what they're doing because this company just two days ago was purchased by Visa for five billion dollars and this is literally the day that I'm talking to our producer. He didn't even know that part. Here's an intro to the company Plaid. It's a CNBC report. It's a shitty one, but at least they have the founder in here and you'll hear what they do. Here's the intro. The interesting key to this new era though
1:59:08 is that we are seeing players who are operating to create new infrastructure that will be relevant in the world of banking and big data and artificial intelligence as we go forward. And one of those examples is Plaid. We've integrated with every bank in the U.S. and now most of the banks in Canada and many in the U.K. And those integrations allow us to collect data or take action on your behalf. If you use Venmo, Robinhood or pretty much any other modern finance app, you've also used a company called Plaid. We sat down with Zach Parray, co-founder and CEO of Plaid at the company's San Francisco offices.
1:59:46 We've always had this kind of mantra of making money easier for consumers. We want to make money easier for everyone. We found out we need to go one layer deeper, build the infrastructure that's sat behind these applications. And so this infrastructure is basically the connectivity between your bank account and an application on the web. Through Plaid's Application Programming Interface, or API, the company can do a lot of the heavy lifting on the back end for someone who wants to make an app, Without a third party like Plaid, startups would have to hire their own engineers and create their own ways to sync with banks, which needs to be adjusted based on different laws and regulations of various countries. Plaid also adds analysis on top of the bank account so app users are able to do things like budgeting or expense management. It can authenticate bank accounts for direct payroll deposits and electronic bill payments, verify someone's identity, verify someone's balance in real time, and understand income and employment.
2:00:40 Okay, so we understand the basic premise, you're right, microservices architecture. The reason they exist is that the banks, the US banks, Really had no API application programming interface that they could expose to app developers And I mean, it's also coinbase as you said, it's acorn. It's Robin Hood I mean, there's hundreds of these apps that use plaid as their connection to the bank So they're they're really a piece of middleware, but it's about how they do that and what they do. I'm sorry. I Well, yeah, well middleware technically, but it's off-site so it's an MSA. It is, you're wrong. It is middleware and it's important. That's the crux of this story. Listen to this. They had actually experienced the problem firsthand. So they started out actually building a financial technology app direct to consumer. It was to help them track expenses, track spending, things like that.
2:01:37 and they ran into the problem first hand that they couldn't connect to bank infrastructure. We went to a hackathon, a TechCrunch Disrupt Hackathon, and we just built a product on top of our infrastructure and kind of launched it and it ended up winning the hackathon. We had a ton of people coming to us saying, hey can I use the backend to that application you built or can I kind of license your infrastructure to go build X, Y, or Z. They made it big with their first customer Venmo, which was not a household name at the time. That app, now owned by PayPal, has 40 million accounts in the U.S. They had a pretty massive interchange fee and Venmo wanted to switch their model to running on ACA trails, so direct bank transfers, which have a much lower fee. And they couldn't get consumers to actually link their accounts because it was too arduous, too difficult.
2:02:24 It was a process where you had to type in your account number, your routing number, you had to wait three or four days, go log into your online banking or look at your bank statement, type in two and four cents, they did this trial deposit verification. It didn't work at all and no one would do it on mobile devices. And so they came to us and said, hey, can you do this quickly and easily? And we of course had this instant onboarding process which they started using. We grow as the first derivative of the fintech market. We're fortunate to have almost every fintech company that's built on top of Plaid. As the ecosystem grows, so do we. So for example, many of our lending customers use Plaid to help understand a consumer's complete picture of their finances as they're applying for a loan. So if I go to a bank and I want to apply for a mortgage,
2:03:06 The bank can easily link the accounts that I have with them, but maybe I have a stock investment account, maybe I have another checking account, maybe I get funds from another place. How can I link all those accounts together, create a financial picture and then use that to apply for the mortgage without having to come in with my 40 pages of documentation? The old model of connecting a bank or transaction account by using a routing and ABA number and an account number These are not things that are just lying around Whereas sort of your login to your bank is in your head most of the time so the up talking is important here because it shows you that this is a millennial who has millennial values and doesn't care as much as Us Gen X or slash boomers might about what is going on here as you heard?
2:03:51 The way that did not work for anybody, and I'm sure everyone who's listened to this show, if you've been around for the past 10 years, active and had a bank account, you've probably gone through the routing number, bank account number, wait for the two pennies to be deposited, then go back and then say, okay, I got the two pennies and seven cents over here, and then the authentication is made. Instead, these guys have built a screen scraper. So if you have Venmo, you have literally given them your username and password to your bank account. They go in acting on your behalf and emulate a human being on the website of the bank.
2:04:35 And that's why they can do everything once they're in. They can see your credit card purchases, when you've paid your credit card, anything that you can do with your login to your bank account, they can now do. Which sounds fabulous. But have you read their terms of service? No, because you never heard of plaid. They can do anything they want with the data they have collected and that's all of your banking information every so when you log into your bank So we have mechanics bank, you log into your bank, anything I can do in there, they do because they are literally emulating clicks. They're emulating clicks and they've done it for every single bank. So they are not just facilitating a transfer.
2:05:23 They are acting as you and you don't really know it and you don't know really what they can do other than what you heard is so how do you get these instant instant loans? Because they go into your bank account do an analysis based upon when you pay your credit card what you're using your credit card for that's how they determine for their customer and If you're trustworthy of a loan, because you basically said, hey, come on in and use my bank. Yeah, I think we got the picture. You don't find this to be extremely disturbing? I definitely wouldn't sign up for it. I'm wondering whether it's even legal. You can't be scraping my passwords and doing all this stuff. It's completely legal and here's the segment about that. The regulatory environment is completely different in Europe. It is a little bit more forward leaning around consumer ownership and access to data. Plaid, one of our foundational beliefs is that consumers own their financial data.
2:06:23 and they should be able to do with it what they want to do. And in Europe, the laws are quite clear, saying that consumers have access to and ownership of all their financial data. And actually, they stipulate how that data can be shared, which is great. So it's really forward-leaning there. We still have a long way to go in terms of challenges like communicating across an ocean is no easy feat. When you have a company like Plaid and it takes your data with your permission and uploads it to some other entity, it is now governed by a whole series of murky rules which are overlapping and sometimes conflicting involving third parties
2:07:02 and also involving data ownership. We don't have clarity in the US about who owns the data and importantly we don't have clarity about when the liability for the security of that data transfers from one entity to the next. So what people need to understand is that when you use Venmo They are going into your account and you've given them permission to do anything they want. That's in your end user agreement. I'm just going to read a few things from how we share your information from... You think you're dealing with Venmo, but you're not. You're dealing with Plaid.
2:07:37 We share our data with the developer of the application you are using. So all the data, any data they get from you, which is your entire bank account, not just where the money is, but everything within your banking, what you do with your bank. Our data processors, other service providers, partners or contractors in connection with services they perform for us or for developers. in connection with a change in ownership or control of all or part of our business, such as a merger, acquisition, reorganization, or bankruptcy. So all your data, if you used any of the plethora of apps, now is owned by Visa because Visa just bought it. Between and among Plaid and our current and future partners, affiliates, subsidiaries, and other companies under common control. And we may collect, use, and share end-user information in an aggregate. This includes
2:08:32 a retention, we retain end-user information no longer than necessary to fulfill the purposes for which it's collected and used unless a longer retention period is required and permitted. As permitted, even after you stop using an application or terminate your account with one or more developer, we may still retain your information. This is crazy. I think we get the picture. Yeah, thanks for being an asshole about it, but I think this is important. I, I, you're not letting me talk. I am! All you're saying is I think we get the picture. We have a smart audience. The picture is that these, if you use Venmo, you're basically turning over all your personal information and all your bank data and all your passwords over to some third party. It's not Venmo. It's hundreds of apps, John. Hundreds.
2:09:24 Anyone who's associated with Plaid is what you're saying. Which is every single financial app that's out there that connects to your bank because there is no app that connects directly to the bank except for your bank's app. Every single one runs through this. Yes, I understand what you're saying. My question is, which is I would hope you thought about, is what happens when a mobbed up operation gets involved in this and just steals everybody's money all at once? Exactly the problem. Well, there's been discussions. about these various bank heists worldwide. We've talked about it on the show about two or three years ago. These mysterious bank heists where through electronic manipulation, entire fortunes are wiped out of certain banks and the banks don't like talking about it because it's like the banks never like talking about how they get ripped off when it comes to electronic fraud.
2:10:25 Sounds to me as though we're looking at a setup for a real beauty. All someone needs to do is to get into this company and once they get into their system, it's over. I mean, you have no idea how many apps are using this. It's really, the list is really, really crazy. And I think it's a big story that is, yes, many in our audience may understand it, But I don't think, I think it's bigger than that. I think more people need to understand this. I think legislation needs to be employed. This is not right. Well, everywhere you read about these guys, they keep, the bottom line is the banks really don't want any legislation. They want to have their own API, but now they're stuck between a rock and a hard place because the minute they turn off Plaid, they'll turn off, the biggest is Venmo, but there's
2:11:29 Again, there's just countless apps that tie into this and they'll lose their customers within 10 minutes because they'll all say, oh shit, you don't use Venmo? I'm going over here. So now they've screwed it up because they didn't jump into this early enough. And do you think that politicians and policy makers understand this? They'll understand after the big bank heist. The worst part, the one that freaked me out is Coinbase. I immediately disconnected because I used Coinbase to buy Bitcoin. Well, you're a Coinbase user. Not anymore. But of course now my data can be retained by Plaid and it's now been sold to Visa even though I've disconnected. I'm no longer using Coinbase, i.e. I'm no longer using Plaid. I am very upset about this. Yes, I noticed.
2:12:34 Well, moreover, when you just keep saying, I think we can get the pink check. Well, I think you know, you're beating me up with this. I mean, I got it right away that what's going on. These guys have come through these, when you said screen scraper, if they're scraping my password and my entry into a bank account, and they're just using it to bypass the system that's normally in place, which is the one you mentioned, which is the two cents, which a lot of people don't understand because they never put up one of these accounts. putting a two cents in the account and confirming it takes two or three days for this process to work. Yeah, I can see immediately what the difference is and what they're doing. It just seems it's A, sounds illegal and B, it sounds very something that can be abused to not a little extreme, but to a massive extreme to where you could bankrupt the country. Exactly. That was my point. And I wish you had just said that. That's all.
2:13:26 Well, I tried to, but you called me an asshole. No, because it was the second time you said we get it. Instead of saying... We got it, we got it. I think we did get it. But you should have gotten to the big point, which is the possibility of this bankrupting the country. So these guys, what's going to happen, here's what's going to happen. Because they know they could bankrupt the country. The mob. Or the Russians. Or the Chinese. Anybody. They're not going to do that though, because that's not what you do. What you do is you get into these systems. And you take it out slowly. Yeah, it's the office space. Ten bucks a month. You nickel and dime it to death. You take out a penny here and a penny there and you're just pulling out millions and millions and millions of dollars from the system very slowly because you don't know how much money do you need. And you just keep doing this over the years and you could take out billions before anyone even finds it more than a rounding error. Fannie Mae uses plaid.
2:14:26 I'm just watching and I'm just looking at what's coming in now. That's mortgages. I just find it... And this is also why 10% of Venmo payments fail because they're screen scraping and screen scrapers fail. That just doesn't always work. This is somebody's really good exit strategy. Well, these guys just sold the company for $5 billion. So that nice exit right there, they don't need to do any... They're done. They can move out. And I don't think, you're right, this would have to be legislation to stop this in its entirety, outlaw it immediately, because there's no way the banks can transition. They're trying, that's what Zelle is about. Zelle is not using plaid, Zelle only works between banks that are hooked up, and that's one of the ways they're trying to get around this. But I think they've missed the boat. It won't happen, it's done. I think that
2:15:29 I think it can be legislated. Oh, it can be, but do you see that happening? I think it can be. I think it can. I think it can be. I don't see it, but I think if somebody took an initiative and started making a... Boy, you! Me? Yeah! I'm not gonna make any initiative. Yeah! No! Why me? Because you're adamant about your more you're worked up you to be perfect You're the guy to go before Congress and get this fixed. Oh, yeah sure I got time for that No, not gonna do it at all not happening. Yeah Yeah, anyway, that was my OTG segment. That was beyond OTG well if you're gonna go in that direction, but gloom and doom I have a if I can find my clips and