Leading Product Edition 8.5
My experience with Plaid and lessons for data exchange | Business Model Innovation | Podcast appearance | Contemplation = 8 minutes
🧥 Twenty Twenty-two
Welcome to the first edition of Leading Product in 2022. It’s been a while. What took so long? See below.
The goal is to publish 12 editions this year, roughly monthly. Hold me to it.
This is edition 8.5 because 8 is still in the draft folder. Let’s get to product things.
🧼 Talk SOAPy To Me
This time last year the Plaid support team was probably pretty annoyed with me. I had discovered a new platform for investing in unconventional assets and went to link my bank account to make a small deposit and see what it was all about.
The site uses Plaid, a fintech marvel that aims to stitch together financial institutions and services to make it easy for users to participate in the digital economy. They allow businesses to present their users with a myriad of ways to connect accounts and process payments, including direct.
That is, when everything is working. Which is probably a lot of the time: as a key player operating the rails of the new digital economy, Plaid has a market cap of (probably) 13.4 Billion USD. But sometimes it doesn’t.
My bank was listed - yay! And I could authenticate on one factor. Then I was prompted for some identity verification questions, which is typical of a bank’s login service. If anything, this instilled confidence. Plaid’s backend was calling out to my bank’s identity service which had the answers to these questions. Almost there!
And then things went wrong, in a really non-specific way:
OK, no problem. Without another institution to try, I was interested enough that I thought I could get some help by reaching out to customer support. Maybe they had some missing parameters or a broken client for this lesser-known FI, and raising a case would alert them to it.
For the record, Plaid support was awesome. An empathetic human responded, dug into the issue, but ultimately turned me back to the website (their customer) for a resolution before letting me know that:
Our team is still looking at this, and had to make the tough decision to take this back offline while we continue to work on it. I'm sorry for that inconvenience, but there's no sense in leaving up a connection that we can't support reliably. We'll keep working on it. And happy to update you as any changes come through -- not sure what the exact timeline will be, but let me know if that would be helpful!
In fact, they did let me know. Last month Plaid got back in touch to relay that
After further investigation, we have determined that this institution requires a rebuild on our backend, and have submitted this request to Engineering.
On one hand, I was disappointed that I couldn’t leverage Plaid to move money to the platform (and another one I attempted to connect to in June) but on the other hand, I totally get it. Such “integrations” are non-trivial: Plaid is building a service to securely facilitate interactions between systems with vastly different technology stacks operated by teams with their own roadmaps and priorities. Their engineers are encountering and trying to change the “laws of business physics,” which apply to financial data and beyond.
The Joy of Electronic Data Interchange
It was with that episode in mind when I read Zack Kanter’s What makes EDI so hard?, a terrific article about how firms exchange data, the perils, and what makes solution providers like stedi so powerful (hint: meta-platform). Kanter explains how standards fall over fast:
…[W]hile a standard can be opinionated about the structure of a document and the naming of fields, it cannot be opinionated about the contents of a business transaction – the contents of a business transaction are dictated by the idiosyncrasies of the business itself. If a standard doesn’t provide enough flexibility to account for the particulars of a given business, businesses would choose not to opt into the standard…
One would think that financial data would be straightforward enough to standardize as an exchange framework, especially due to open banking efforts. But such efforts have not yet been translated into policy, at least in Canada. There are a lot of great ideas floating around, but adoption is still very early and uneven. Hence why some fintechs are ably competing with established FIs for consumer business and leading the way on establishing standards (AKA changing the laws of business physics).
What are we left with today? According to a recent government report “As many as 4 million Canadians use data-driven financial service providers that require screen-scraping” (Source). This paradigm is less than ideal: among other issues, screen scraping is often coarse grain, means passing off credentials (to only certain parties - good for gatekeeping), and requires processing power to reconcile data.
Overall, current digital banking features are far from perfect: recall any episode of someone misdirecting an e-transfer, having their account compromised, or trying to find out if payment has been received by another party.
Open banking isn’t a panacea and won’t solve all problems (there are many basic User Experience problems that can be addressed for far cheaper), but standards and the availability of trustworthy platforms to mediate transactions will definitely help to alleviate a lot of user (and developer) pain. Even small pains like trying to test drive a new investment platform.
Product owners have a role to play in all this. The design of systems intended to interoperate and integrate with others will require familiarization with data exchange standards, such as (and namely) X12. We must understand our applications’ syntaxes, and catalog the fields that can be mapped by others to effectively integrate with what we’re building. Doing so unlocks scale and relevance. It’s important to keep in mind that moats are powerful, and should be pursued. A moat, when implemented, can cut off others from the market but it can also isolate your product from potential partners.
Keep reading and watching and listening
↘️ APIs All the Way Down by Packy McCormick, Not Boring (narrated version here).
🎫 Register for Plaid’s 2022 fintech predictions with Zach Perret - January 24th, 2022 | 9:00AM PST
🟢 Deloitte - Creating an open banking framework for Canada
🛵 Business Model Innovation
Found in scholarship… breaking down the dense stuff :)
Florian Rummel, Stefan Hüsig, and Stefanie Steinhauser have published a research paper in R&D Management that takes on some dogmas concerning innovation, and how manufacturing firms in particular align business models with new products.
Their case-based analysis leads them to identify four phases for B2B firms: ideation, design, validation, and implementation. For B2C firms, the phases are more blurry with activities divided across ideation, design, and scaling. There is a ‘gating’ between each phase as firm leaders decide to proceed or not.
So what? All firms must ask themselves how new ideas are nurtured and considered. Where are the gates and who owns them? How are proposals solicited and resourced such that the firm remains innovative? For the manufacturers studied in the article, knowing the ecosystem was identified as one critical foundational step. For example a company that developed an e-scooter couldn’t have without partnering with a telco and insurance provider.
How does your company’s ecosystem influence what you can or cannot build?
🎙️ Podcasting and Data Governance
I was a guest on Security Compass’ podcast, The Balancing Act, to discuss data governance. Great host, really enjoyed it.
How do you anticipate, prepare for, and cause disruption? For yourself or for your company.
(And what Tumblr did, or didn’t do).
🙏🏽 Thank you
Thanks for reading. Have an awesome week.
Given 6+ months have passed, I’m curious whether the FI in question reworked their backend to resolve the integration issues.
Canada has been slow to adopt open banking, and the pandemic certainly pushed it further down on the to-do list. I patiently wait for the Canadian government to introduce the first stage of open banking in 2023.
On the other hand, Canadian banks do realize the benefits and need to provide easier access for customers to share their financial data, and started inking agreements with private companies to provide third-party access (e.g. TD with Finicity, RBC with Yodlee). So there is hope that we will see “some” level of expanded (not open) banking access to us customers soon.
Now the question is: do traditional FIs have product people that possess the business acumen and technical knowledge to launch open banking capabilities SECURELY? I hope we won’t find out in the hard way.