Plaid is buying a company that can help with the “major challenge” of ID verification, while Cognito will likely benefit from Plaid’s scale.
Cognito, based in California, offers several services to companies, including compliance services, such as Know Your Customer rules (KYC) and anti-fraud and identity verification technology.
Its services are used by hundreds of digital financial companies, including customers of API provider Plaid.
In a blog post, Zach Perret, Plaid CEO, said: “Verifying someone’s identity is critical across almost all financial services, yet remains a major challenge for many companies that stitch together different solutions to get the tools and data needed.
“This patchwork approach often delivers poor user experiences that result in people abandoning the signup process because it takes too long or it is too difficult to provide the required documents and information.
“The Cognito team has built a platform that combines all of the tools and data sources a company needs for automating identity verification, KYC and AML screening.
“When built into customer onboarding processes for digital finance apps, Cognito provides a great user experience that enables companies to successfully onboard more customers and reduce fraud.
“Identity verification is one of three critical parts of a complete onboarding experience, along with account connection (connecting your bank/financial data to an app) and account funding (moving money into an app), which Plaid provides today.”
Cognito CEO Alain Meier said: “Cognito's trajectory over the past decade, starting from outsiders peering into the identity space and ending with a crisp and confident vision for the future, is why I sincerely believe that Plaid is a perfect home for Cognito.
“Plaid believes in our vision to drastically reduce the overhead of onboarding customers for all fintech applications. With Plaid backing us, we will continue to build amazing products for years to come.”
In August last year, Plaid raised an undisclosed amount of funding from J.P. Morgan Private Capital Growth Equity Partners and AmEx Ventures, on top of the $425m Series D it bagged earlier in the year at a $13.4bn valuation.