Plaid’s Lowell Putnam: ‘Liabilities gives student lenders access to a whole new set of data points’

Lowell was also the founder of Quovo, a data aggregation competitor with strength in the investment industry that Plaid acquired earlier in 2019.

Tearsheet has been covering the data aggregation industry because it’s our contention that getting this right is one of the underpinnings of modern finance. Sharing clean data between banks and apps may be somewhat of a boring business but it’s an important one.

Plaid recently launched Liabilities, a product that gives PFMs and student loan providers and refinancers access to the liabilities side of their potential clients’ balance sheets. This is a very active area of fintech and should help to propel things forward.

Plaid’s Lowell Putnam joins us on the podcast to talk about the new product and how clients are using it in their applications. Lowell was also the founder of Quovo, a data aggregation competitor with strength in the investment industry that Plaid acquired earlier in 2019. He talks about the combined entity and provides some insight into the product roadmap the company plans to execute on.

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The following excerpts were edited for clarity.

Launching the Liabilities product

We’ve always lived with a very accounting-driven mindset. Liabilities is a departure from that core data set into what I’d call metadata, for lack of a better term. Liabilities represents the access to a whole new set of data points that are unique to liabilities financial accounts. The APR on your credit card or student loans didn’t traditionally have a home in our database. But we found a lot of companies were coming to us for a data set that was slightly more diverse that we didn’t offer.

It made a lot of sense to start with student loan accounts. We have a crisis of student debt in this country. There is a lot of interest in solving the crisis but there hasn’t been a lot of ability. There’s been a real asymmetry for the demand for products to help people with their student loans and the ability of those products to really be effective. We realized it was a data challenge.

What fintech is doing with liabilities data

Over the past year, the proliferation of high yield savings accounts and debit cards coming out of fintech companies has us all leaning toward a rebundling mindset. I guess the current trend in fintech is to go broad, rather than deep.

In the case of student debt repayment, the breadth story may be a little different. I don’t know if the breadth of these new student loan repayment firms includes dropping a high yield savings account. To me, it feels more like one leg of a PFM stool — helping you manage your overall budgeting life. I can see this more of a feature attached to other savings or PFM features. It’s pretty early to tell and it will take a while to see the benefit of student loan consolidation or repayment.

If I had to guess, you might see some of the rebundled incumbents like Acorns, Stash, Betterment or SoFi adding more sophisticated repayment tools as an ancillary product or feature.

The Plaid audience

The folks looking to add a debt management solution onto their existing stack, like MoneyLion, desperately need information about existing liabilities if they want to get people on a path to a better financial life. In this case, they’re expanding their product set into a new silo.

Some others can’t get to first base on a new product without access to things like APR. Today, it’s student loans. But the Liabilities product touches on metadata points like next repayment date, current APR, APR changes over time and delinquency rates. We’ll be moving into mortgages and credit cards and other debt classes. That will open a whole new set of products, too.

The combined Plaid and Quovo

There were convergent evolutions of our product sets so that about a year ago, we found ourselves highly competitive. It wasn’t like that historically. Plaid grew up in the bank instant authentication space and where it’s excelled from the early days. Quovo started doing brokerage account aggregation. We seemed very different back in 2013.

Quovo’s wealth clients started pulling us closer to the banking space because of their interest in banking and lending — this is part of the rebundling effort that you’ve recently covered. At the same time, Plaid was pulled into much more sophisticated PFM-style use cases.

We woke up and we were real competitors. Zach and I have known each other for a while. 2019 could have gone two very different ways. We could have beaten each other up in the market and pricing probably would have suffered. Or, we could join forces and play to our strengths. We got through the deal in about 50 days from beginning to end.

Commoditization of data

Nobody says I love ConEd. We are in a lot of ways a utility, but the commodity we have is literally the lifeblood of the companies we work with. When you have water and it works, you generally don’t think about the quality of the water. We have to do a better job explaining that there is dirty and clean water.

For a fintech starting out, if Plaid gets the data right from a small credit union in the midwest, it saves you a support ticket you would have otherwise gotten from another aggregator. That has ripple effects. There are hidden costs to poor data quality.

The product roadmap

Everything we’re doing here — at its core — is providing the raw data or first-order derived data that a fintech needs to really make an impact. The Liabilities launch is a good example of that: There was no place in our dataset to put an APR, but we had demand from customers for these data points.

I would expect to see a lot more from us over the next year, listening to our customers, and adding in data points they want but we don’t have. We’ll add them in in an expandable, replicatable way. We’re not just going to get one student loan — one element — for you. If we can’t cover eighty to ninety five percent of the market, we’re not very useful. So, adding breadth as well as depth will be part of our product roadmap. You’ll be seeing more liabilities asset classes later this year, including credit cards, mortgages, HELOCs.

The work we’ve done on investments which came from rolling in a lot of the Quovo technology — that’s already been initially launched this year. We need to keep doubling down on it because investments are probably the most complicated of any account type we work with. So, we’re really just at the tip of the iceberg for investment assets.

Whatever that one data point you need, we want to be able to source that one piece of insight you need to service your customers.

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Cost of city living

A Credit Karma study found suburbanites have almost four times more in their savings accounts than people in cities. Get tips to stop sacrificing …
Advertiser Disclosure

We think it’s important for you to understand how we make money. It’s pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.

Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That’s why we provide features like your Approval Odds and savings estimates.

Of course, the offers on our platform don’t represent all financial products out there, but our goal is to show you as many great options as we can.

Living in a city may mean you’re trading your rainy day funds for skyline views.

A Credit Karma/Qualtrics survey of 1,022 American adults found that people who live in urban areas report having a median of $1,000 in their savings accounts. Those in suburban areas, however, report having nearly four times as much in their savings accounts — a median of $3,600. (Learn about our methodology.)

The higher cost of necessities could be leaving city dwellers with little wiggle room in their budgets to save. Our survey found 57% of urban respondents’ monthly income goes toward essentials like rent, food and utilities, while nearly half (47%) of those living in cities have or have had student loan debt.

Sacrificing savings to live in the city may seem OK in the short term, but city dwellers may be less financially secure in the long run as they head toward retirement. Our survey shows just 29% of people in cities report having 401(k) retirement accounts, compared with 40% of those in the suburbs.

So is it time to pack up and move outside city lines? Not quite. We have some tips below that can help if you’re feeling the financial strain of city life. But first, let’s take a look at some of the reasons city dwellers may have less room in their budgets to save compared with those in the suburbs.

Key survey findings

Respondents who live in cities have a median $1,000 in their savings accounts compared with $3,600 for those in suburban areas.
City dwellers report having a median $500 in their checking accounts compared with $1,000 for suburbanites.
While 40% of suburbanites have a 401(k), just 29% of city dwellers do.
The top financial goal for urban respondents is to become financially stable (51%), while suburbanites say their top financial goal is to grow their savings or investments (46%).
People in cities are more likely to say their top reason for moving in with a roommate would be to keep rent costs down (63%) compared to people in the suburbs (44%).

Static wages and a rising cost of living are a drag on city living

It’s no secret that wages haven’t kept up with therising costs of living. According to the Bureau of Labor Statistics, between 2013 and 2017, average income before taxes rose 15%, but expenses increased by around 17.5%.

Our survey shows that city dwellers in particular might be feeling the pressure of slow wage growth and the high cost of living: 22% said they believe their income is “very low” for the area they live, compared with just 13% of suburbanites. What’s more, 20% of city dwellers say they spend more than they make most months, and the top financial goal cited among urbanites (51%) was to become financially stable.

The cost of living can be high in cities compared with the suburbs, according to our survey findings. The table below shows some examples of where survey respondents report spending most of their money.

Percentage of take-home pay spent per month

City Suburbs
Essentials (food, utilities) 28.4% 26.6%
Rent/mortgage 28.6% 24.2%
Non-mortgage debts 14.1% 15.8%
Entertainment 10.3% 10.4%
Savings 8.5% 9.9%
Other expenses 10% 13%

But it’s not just the overall cost of living that’s leaving people in cities feeling the pinch. People in cities report spending more on housing than those living in the suburbs — almost one-third of their monthly pay (28.6%) compared with less than one quarter (24.2%) — and to spend the largest share of their income on housing.

And the cost of housing may drive city dwellers to move in with others at a higher rate. Among respondents who said they’d move in with a roommate, 63% of city dwellers said lowering their costs would be the top reason for doing it, compared with just 44% of those living in the suburbs.

Student loan debt hits city dwellers particularly hard

Student loan debt is a concern for many Americans no matter where they live. According to Federal Reserve Bank of New Yorkdata, in the first quarter of 2019 student loan debt climbed to $1.49 trillion. In June 2019, Credit Karma members with student loans had an average student loan debt balance of $36,140, according to TransUnion credit reports.

A higher rate of student loan debt among people in cities could be hindering their ability to save. Our survey found 47% of urbanites currently have or in the past held student loan debt, compared with 39% of those living in the suburbs.

A2019 Freddie Mac survey found that student loan considerations can have a big impact on people’s housing decisions. That survey found 51% of millennial renters had to make a different housing choice because of their student loans, while over half of workers employed in the essential workforce — think healthcare, education and law enforcement — had to make housing decisions with student loan obligations in mind.

But withfewer affordable housing options in urban areas, city residents could be left with no choice but to dedicate large portions of their paychecks to rent and student loans, with only a bit left over for savings.

Younger generations have a higher tolerance for expensive housing — and shared spaces

The younger the generation, the more willing its members are to spend and share in order to afford housing, our survey found.

Gen Z respondents, in particular, said they’d be willing to spend nearly half (49%) of their paycheck on rent or mortgage if they had to. Millennials were close behind at 45% of their paycheck. But Gen X respondents and older said about a third of their paycheck (36%) is as high as they’d be willing to go.

What’s more, nearly one-third of Gen Z respondents said they’d consider moving in with someone they didn’t know, compared with just 17% of millennials. The reason? Nearly half (45%) of Gen Z respondents said they would do it to make their rent more affordable.

With younger generationsincreasingly moving to urban areas and housing coststrending higher, millennials and those in Gen Z could very well see a larger portion of their pay going to housing — and it seems they’ve already started adjusting their expectations and strategies accordingly.


Saving in the city: How to live your best life while planning for the future

Based on our survey results, it’s clear that managing to save is a struggle for many people, especially if they’re living in cities. If that describes your situation, we have some tips to help you budget and work on your savings:

Know thyself (and thy budget)

Be honest with yourself about how much you can afford and stick to that. The U.S. Census Bureau recommends spending no more than 30% of your monthly income on rent. As a starting point, if you’re looking for housing, do the math and see what 30% can get you.

If your ideal area or apartment puts you over that threshold, ask yourself what you can tolerate and what you’re willing to compromise when it comes to your living situation. For example, are you willing to live with multiple roommates if it means saving a couple of hundred dollars a month?

Get creative and have an open mind

Although living with other people may not be everyone’s preference, it can be a way to help lower your housing costs. You could also consider getting a side gig to help supplement your living costs. A quarter of all city dwellers surveyed said one of their financial goals included getting additional sources of revenue. Adding to your total income each month could make it easier to put away some savings.

Don’t forget to prioritize future you

You don’t have to have a 401(k), stocks or a trust fund to become a saver. All it takes is setting aside any amount — no matter how small — each month in a savings account. Think about a percentage or a dollar amount you can spare from each paycheck and put it into the account. Over time,compound interest can help your money grow more quickly.


Methodology

On behalf of Credit Karma, Qualtrics conducted a nationally representative online survey in June 2019 of 1,022 Americans aged 18 and up to learn about savings and spending habits in urban areas vs. suburban areas. We also studied the generational differences among responses. To calculate the average student loan debt balance among Credit Karma members, we analyzed, in aggregate, the total student loan debt held by U.S. members as shown on their June 2019 TransUnion credit reports and divided that amount by the total number of U.S. Credit Karma members with student loans reported on their TransUnion credit reports for the same month.

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Colorado residents see red, carrying more debt than all but two states and DC

Nationally, the per capita debt burden runs $50,090, according to an analysis from HowMuch.net, which looked at numbers from Credit Karma and the …

Colorado has the lowest obesity rate of any state, but when it comes to financial fitness, residents of the state borrowed money at an unrivaled pace last year, contributing to one of the heaviest debt burdens in the country.

Nationally, the per capita debt burden runs $50,090, according to an analysis from HowMuch.net, which looked at numbers from Credit Karma and the Federal Reserve Bank.

But in Colorado, the per capita debt burden is at $71,340, just behind California at $71,860. The leader nationally was the District of Columbia at $86,730, followed by Hawaii at $72,590.

Mortgages constitute the lion’s share of personal debt, followed by student loans, auto loans and personal loans.

Colorado ranked fifth amongst all states with an average mortgage balance of $253,202 in 2018, and tied with Texas for the fastest growth rate in mortgage balances at 3.6 percent, according to the credit rating agency Experian.

Rising mortgage debt has followed a spike in home prices this decade, especially along the Front Range. The desperation to get into a home may also explain why Colorado residents borrowed money at a pace unmatched anywhere else.

The average debt individual borrowers added last year was $3,536 in Colorado between the fourth quarter of 2018 and the fourth quarter of 2017, according to Experian. That’s four times the average gain of $871 across all states during the same period.

As recessionary concerns mount, consumers decreased debt in a handful of states, including New York, New Jersey, Maine, Maryland, Vermont and Oklahoma. Colorado borrowers, along with those in Utah, Washington, Oregon and Massachusetts, went strongly in the opposite direction.

Overall consumer debt in the U.S. hit $13.3 trillion at the end of last year, with several categories reaching record highs, according to Experian. They included residential mortgage debt at $9.4 trillion, student loans at $1.37 trillion, and auto loans at $1.23 trillion. Personal loan debt, which reached $291 billion, was the fastest-growing loan category nationally.

How Pillar Is Helping Solve The Student Loan Problem

Rainfall Ventures, Great Oaks VC, Financial Venture Studio, Kairos, Red Dog Capital, and Day One Ventures participated in this round. And individual …
  • Pillar, a company that is helping solve the student loan problem, announced it has raised $5.5 million in seed funding
  • This round of funding was led by Kleiner Perkins with participation from Rainfall Ventures, Great Oaks VC, Financial Venture Studio, Kairos, Red Dog Capital, and Day One Ventures.
  • Individual investors Adam Nash, Noah Weiss, Zach Weinberg,Misha Esipov, Patrick Kavanagh, and Nadia Asoyan also participated

Pillar is a company that helps people manage, pay off, and save money on their student loans. And early users of the service have already linked $50 million worth of student loans into the platform for automating and managing the loan repayment process. And Britta Mulderrig, the head of growth and marketing at Pillar, announced that the company has $5.5 million in seed funding led by Kleiner Perkins.

Rainfall Ventures, Great Oaks VC, Financial Venture Studio, Kairos, Red Dog Capital, and Day One Ventures participated in this round. And individual investors include Adam Nash (the former CEO of Wealthfront and Acorns board member), Noah Weiss (former SVP of Product at Foursquare), Flatiron Health co-founders Zach Weinberg and Nat Turner, Misha Esipov (CEO and co-founder of Nova Credit), Patrick Kavanagh (head of growth at Robinhood), and Nadia Asoyan (head of finance and strategy at Robinhood) also joined.

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Student loan debt is considered the second largest type of consumer debt with 45 million borrowers in the US owing more than $1.5 trillion. And 7 out of 10 students take out loans for paying for college and the average person graduates school with $30,000 in debt and it takes an average of 20 years to pay it off. And it takes more than 30 years on average for people with $60,000 in debt to pay it off. Nearly 20% of borrowers owe more than $100,000 after graduation.

And student loans also have a negative impact on the economy and harms wealth creation opportunities in America. About 83% of people ages 22 to 35 with student debt blame their loans as the reason why they have not bought a house yet. And women — who own two-thirds of all student loan debt — are disproportionately impacted due to the gender pay gap. Since women borrow more and earn less, it results in two extra years for paying off their loans.

How does Pillar work? The platform aggregates all of a borrower’s student loans into one place. Then it analyzes their loans, income, and spending for determining the fastest way to pay down their debt. From there, Pillar automates the payment and management process — which makes it easy for people to take action and pay off debt faster.

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“Last year my wife graduated from law school with over $300k of student loans. I was at Stanford Business School, where I planned to take on another $250,000 of debt. We spent weeks researching how we were going to pay our loans back, but struggled to find a way that was right for our unique financial situation and goals,” said Pillar co-founder and CEO Michael Bloch. “I experienced the same problem that millions of other borrowers face each day. I saw how the student loan debt crisis is one of the biggest challenges facing our country, so I dropped out of Stanford to help solve it.”

Essentially, it solves the pain points inherent to managing student loans, thus creating a positive impact on borrowers and helping them get out of debt faster. And the average borrower on Pillar will save $6,200 and four years on repayment.

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“Managing student loans has become one of the biggest challenges for many Americans today, impeding their financial well-being,” added Kleiner Perkins investor Monica Desai. “Startups have revolutionized many aspects of personal finance. We believe Pillar is well poised to tackle this mounting crisis and make it radically easier for graduates to manage and get ahead of their student loans.”

One of the biggest issues for borrowers is that student loan lenders are financially incentivized to keep people in debt longer. Pillar is not a student loan provider or refinancer so it does not make money from charging interest on student loans. And it takes just two minutes to sign up with Pillar. Plus it is completely free to download and use. Later this year, Pillar is going to introduce premium features that people can access.

“According to my student loan providers, I will be paying off my loans until I am 40 — yikes. I’m excited about Pillar because it tells me how much money I save by paying a few extra dollars towards my loans every month, which lender apps don’t do and are hard to use. With Pillar, I can see all my loans in one place and can finally see how much money that extra $5 saves me!” exclaimed BNY Mellon project manager Jordan Trejo.

With Pillar, people can make in-app payments and they are regularly updated on new ways to save money so that they can pay off their loans more effectively. And Pillar shows people how much money they will save over time if they make specified payments now or in the near term and whether they can afford to increase or decrease their payments.

“There is no simple way to figure out if you’re on track with making your student loan payments, I’m always wondering if I’m doing the right thing and making the right payments. Pillar’s app makes it easy to know if you are on the right track and making progress,” explained filmmaker Nora Unkel.

Pillar was founded last year by Bloch and CTO Gilad Kahala. Kahala was previously a senior data engineer at Spring Inc., a senior software engineer at Fiverr, and a software engineer for ForNova, IBM, and Zoran. And prior to launching Pillar, Bloch was a manager at DoorDash, the head of growth at Camio.

“I’ve been looking for a way to easily see and repay my student loans all in one place,” explained Ashwin Aravind — who is a law school graduate and management consultant with more than $200,000 in debt. “It’s exciting to see Pillar come along because that’s exactly what it does. I can use it without getting confused or feeling like I’m being kept in debt longer so someone else can make money off of me.”

You can download and sign up for Pillar in two minutes via iOS or via Android, which will add users quickly to a growing waitlist. Early access to Pillar is based on a first-come, first served basis.

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