Financial technology innovator Plaid recently announced another round of funding, with JPMorgan Chase and American Express leading the pack. The amount raised was undisclosed, but during its initial Series D funding round in April, the company raised $425 million, bringing its valuation to more than $13 billion, according to published reports. That's far more than the $5.3 billion Visa was ready to pay for Plaid in January 2020, a deal that was ultimately blocked by the Justice Department.

Plaid is at the forefront of the "open banking model," and as traditional financial institutions invest in the fintech, it shows they are accepting the shift toward this new model in finance. Given its valuation growth in the past two years, Plaid will be one of the larger initial public offerings (IPOs) when it finally goes public. So when will that be -- and what do we have to look forward to?

What is Plaid?

Plaid is a technology provider that lets customers connect their bank accounts to other apps so they can quickly and efficiently transfer money or make payments. Any time you connect your bank account to an app by simply signing into your bank account, you're likely using Plaid's technology. The company charges fees to apps for using its service, so if you were to connect your bank account to Robinhood and transfer money, for instance, Plaid would get a small fee for helping to facilitate the transaction.

Woman uses phone to pay at coffee shop.

Image source: Getty Images.

The company benefited during the pandemic as customers have been forced to do more business online and through mobile apps. A source told Forbes back in April that Plaid's 2020 revenue was around $170 million, and its business grew 60% from the year prior. Zach Perret, Plaid's CEO, told Forbes: "Three-fourths of consumers are saying they've achieved a new normal in their financial life, and they plan to fully interact with their financial services digitally. The 50-plus demographic, for example, is one of the fastest-growing demographics amongst many of our customers."

Plaid and the open banking model

Plaid is a company on the leading edge of the "open banking" revolution. Open banking is when banks open up access to data from financial institutions -- like Wells Fargo or Visa -- through the use of an application programming interface (API). An API is a tool that allows third-party developers to access a company's data and functionality, which can then be used to create products that share data and communicate with one another.

I see open banking as a trend that could shape the financial industry for years to come. This model allows for innovative apps that can quickly and efficiently let customers do things like initiate money transfers, payments, or credit checks to buy a car or home. In a study by Accenture released in June, researchers said "a wave of change" is coming as open banking grows in popularity. Those researchers say that "$416 billion in revenue is at stake as the open data wave arrives."

Keeping an eye out for an IPO

The fact that JPMorgan Chase is an investor in Plaid after CEO Jamie Dimon openly criticized Plaid earlier this year as "people who improperly use data that's been given to them" should get the attention of investors. Traditional financial institutions see the wave of change that's coming and don't want to miss the party.

Plaid has been mum on whether it will go public soon. In January, some speculated that the company could go public via a special purpose acquisition company (SPAC). However, one source told Barron's that this wasn't an option, and that at the time, "with $600 million, [Plaid] can be independent for a long time." If I were to guess, I don't believe Plaid will go public until 2022 at the earliest. Plaid raised $425 million back in April, and with this latest round of fundraising, it likely won't need public investment dollars anytime soon.

However, it might not be a bad time for Plaid to go public. Fellow fintechs Robinhood, Coinbase, and Affirm have done so in the past year and have reached market capitalizations of between $30 billion and $60 billion in what have been very favorable conditions for IPOs. As open banking shakes up the financial sector -- and perhaps every sector -- Plaid is on the leading edge of the trend. This is one IPO I'll be eagerly awaiting.