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Sep 15, 2022Liked by Brendan Keeler

Ex Plaid and current Codat here. I thought I might share our learnings from 5 years of building SMB FinTech infrastructure and where we are heading as a result.

The fundamental challenge here is not actually aggregation. Plaid supports over 10,000 financial institutions in the US alone. Each of them have unique end user authentication protocols and data retrieval methods. Aggregating that data yourself is a nearly impossible task for any developer trying to build a FinTech app that needs this kind of connectivity.

However, when it comes to small businesses there are a relatively small number of data sources that actually matter, most of them have very mature developer experience programs and very standard authentication protocols. There are at most several dozen SMB financial SaaS platforms globally that really matter and many of the category leaders have upwards of 50% market share in their core geos. Unlike banks, companies like Intuit, Shopify and Stripe have hundreds of engineers, PMs and DevRel folks supporting their APIs. If you’re building an SMB FinTech app, aggregating this data is absolutely necessary. But it's also not especially difficult to do it yourself, particularly at scale.

We think the real problem is interoperability.

Small businesses use dozens of different types of SaaS applications to run their business and getting them all to work in concert is a real challenge for developers trying to bring new financial products to market for SMBs. Different applications are used for different financial operations - bookkeeping, sales, ecommerce, billing, bill payment, payroll, advertising, forecasting, banking (small businesses have bank accounts too, yo!), etc., etc. Aggregating each of these categories is pretty straightforward, and we do that too (except banking, hence our integrations with Plaid and True Layer). But getting them to work with each other is anything but.

Finance and operations teams spend hundreds of hours with these platforms and it's really difficult for developers to build integrated and automated solutions on such a fragmented ecosystem. So is getting a comprehensive, accurate and real time understanding of the health and performance of that business.

And if that weren’t bad enough, each of these platforms have their own developer registration process, app approval requirements and marketplace strategy. Unlike consumer financial data, there is almost zero regulatory framework guiding how, when or even whether this data can be accessed by third parties. There are almost no standards governing the rights of small businesses to share their data nor the responsibilities of those with whom they share it. Integrating with these APIs is often easier than simply getting access to them in the first place.

These are the problems that Codat is trying to solve. Most of SMB FinTech is converging on a handful of core use cases, and everyone wants to be the financial operating system for their slice of the market. Codat wants to be the core infrastructure on which those operating systems run.

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