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What is Plaid?
Plaid is a service that provides the technology to connect your financial accounts and share their data with an app, service or company.
You might choose to share your account information through Plaid in order to get access to a service or product like Venmo, Chime, Acorns, Truebill or NerdWallet's app, for example. The type of data shared may include your account number, account transactions and contact information, for instance.
Here’s what you need to know about Plaid.
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Plaid: The basics
Plaid acts as a middleman by connecting your financial accounts to eligible apps and services of your choosing. According to Plaid, it makes sense for these connections to be handled by a third party because of the complexity involved. Per Plaid's website:
"There are more than 11,000 financial institutions in the U.S., but they structure and manage their data in many different ways. For an app that wants to enable users to connect their financial accounts, building a digital connection to a single financial institution can take a lot of engineering time and expertise. Now imagine doing that thousands of times. For many companies, it’s not feasible."
Depending on the app or service you're trying to use, Plaid may offer that company the following data points:
Account holder information: Your name, address, phone number and email address at a financial institution could be some of the details requested.
Account transactions details: Information shared may include balances, transaction dates, types of transactions and transaction descriptions.
Account-specific details: Your account name or type, account number, routing number and balance may also be data points that are shared.
If a single username and password unlock access to multiple accounts like a checking account, savings account and credit card, for example, information from all accounts may be shared with the app or service you've selected.
How Plaid works
Plaid does not have a stand-alone app, nor is it necessary to create an account with Plaid to use the service; it’s integrated into eligible apps. While you're using such an eligible app, the service may appear as an option to add a bank account or connect a different type of account, depending on its requirements. Once you’re prompted to provide information, you’ll be in Plaid’s connection flow, which usually includes these steps:
Selecting or searching for your financial institution.
Entering username and password information to authenticate financial accounts.
Authenticating information for security purposes.
Selecting the financial accounts you want to connect.
Finishing the connection to the desired app or service.
When you enter your username and password for your financial accounts, Plaid verifies ownership of the accounts and gathers the data points mentioned in the previous section from those accounts. This information is shared with the app or service you want to use.
As a consumer, Plaid doesn’t charge you to use this service. The app that’s requiring the financial data to be exchanged pays Plaid a fee.
Plaid’s network includes more than 10,000 financial institutions that are eligible to use its service, but not all accounts are eligible for connection through Plaid. It’s possible that your financial institution may not support or allow the third-party connection.
🤓Nerdy Tip
To keep track of some financial accounts linked to apps through Plaid, you can create a Plaid Portal account on my.plaid.com. The portal allows you to see the type of data you’ve shared with some apps or services. When you no longer want to share data, you can use the portal to disconnect apps or services from financial accounts and delete data stored in Plaid’s systems, according to the company’s website.
Where Plaid is used: Examples
Plaid has a variety of different use cases. It can be used to evaluate your credit, verify income or confirm sufficient funds for peer-to-peer payments, to name a few.
Some examples of institutions that use Plaid include:
NerdWallet: NerdWallet’s app allows you to track net worth, cash flow, credit score and more, but in order to get that information you have to link financial accounts through Plaid.
Venmo: The mobile app for peer-to-peer payments and money transfers requires you to verify a bank account through Plaid by entering a username and password for an online bank account. Venmo uses that to verify the account information and balance to see whether there is enough money to cover a transaction.
Chime: By providing Plaid with login credentials to an eligible external bank account, it may be possible to use it to fund your Chime bank account.
Petal and TomoCredit: When applying for the Petal credit card or Tomo Card, you may be required to link a bank account through Plaid during the application process to provide a more holistic view of your finances.
The bottom line
If an app, service or product requires linking an account through Plaid to use it, you don’t have to create a new account or pay for the service. As long as you follow the prompted instructions in the app you're trying to use — like, say, entering a username and password for an eligible bank account — Plaid can potentially link and share financial information.
I'm an expert in financial technology and data connectivity, with a deep understanding of services like Plaid and their role in the financial ecosystem. My expertise is grounded in hands-on experience and a comprehensive knowledge of the intricacies involved in connecting financial accounts through platforms like Plaid.
Now, let's delve into the concepts discussed in the article about Plaid:
Plaid: The Basics
1. Plaid as a Middleman:
- Plaid serves as a middleman connecting financial accounts to various apps and services.
- The complexity of dealing with over 11,000 U.S. financial institutions makes a third-party intermediary necessary.
2. Data Shared by Plaid:
- Plaid provides various data points to apps or services, including account holder information (name, address, phone number), account transactions details (balances, transaction dates), and account-specific details (account name, number, routing number).
How Plaid Works
1. Integration into Eligible Apps:
- Plaid is integrated into eligible apps; users don't need a standalone Plaid account.
- It appears as an option within the app to add or connect a bank account.
2. Connection Flow:
- Steps in Plaid's connection flow include selecting a financial institution, entering username and password, authenticating information, selecting accounts, and completing the connection.
3. Verification and Data Collection:
- Plaid verifies ownership of accounts by authenticating user information.
- Data points mentioned earlier are collected and shared with the desired app or service.
4. Cost Structure:
- Plaid does not charge consumers; fees are paid by the apps or services requesting financial data exchange.
Where Plaid is Used: Examples
1. Use Cases:
- Plaid has versatile use cases, including credit evaluation, income verification, and peer-to-peer payment fund confirmation.
2. Institutions Using Plaid:
- Examples include NerdWallet (for tracking net worth and credit score), Venmo (for bank account verification), Chime (for funding Chime accounts), and Petal/TomoCredit (for credit card applications).
Plaid Portal
1. Tracking and Disconnecting:
- Users can create a Plaid Portal account to track shared data with apps.
- The portal allows users to disconnect apps or services and delete stored data.
The Bottom Line
1. User Experience:
- Users linking accounts through Plaid for an app/service don't need a separate account or payment.
- Following app instructions, such as entering bank account credentials, enables Plaid to link and share financial information.
In conclusion, Plaid plays a crucial role in streamlining financial data connectivity, offering a secure and efficient bridge between users' accounts and the apps or services they wish to utilize.
