FEBRUARY 2, 2022
8 min read
What if you were told that not all fintech companies have access to your sensitive banking information? Would you be surprised to learn that Personal Capital, Mint, Chase, and Bank of America use Plaid as a secure intermediary entrusted with your private data? What is Plaid, after all?
Originally launched by Zach Perret and William Hockey as a bookkeeping and budgeting platform, Plaid is present not only within the US. Its services echo around the UK, Spain, Canada, Netherlands, Ireland, and France. Hence, the Plaid online banking is available beyond the country of origin to bring even more security to European financial and banking systems.
Technically, Plaid, as well as its competitors like MX, Dwolla, or Stripe Connect, takes advantage of financial data APIs to ensure the best communication between your encrypted information, a bank, and a fintech app of your choice. Is Plaid safe to be employed for business purposes? Well, considering that the most renowned global fintech banks work with this platform, the answer is more ‘yes’ than ‘no’.
Today Plaid serves as one of the most famous open banking players to operate internationally. According to Statista, there were more than 24m open banking users worldwide in 2020, with forecasts indicating that this number is about to reach 132m by 2024. As a rule, open banking users aren’t huge fans of sharing their personal information with third parties. In light of the modern multi-brand world, customer loyalty is the flagship of any commercial endeavour, so you’d better gain more insight into how enterprises squeeze value out of this service.
Thus, let’s go ahead and find out how you can make use of Plaid banking. If you’re interested in ensuring security for your fintech product, it’s certainly worth giving this platform a try!
What Is the Role of Plaid in Fintech?
Headquartered in San Francisco, California, and founded in 2013, the company operates as a financial services organisation specialising in safe data transferring between customers and fintech players. Simply put, Plaid functions as the power behind the throne of global transactions. Nobody may notice it but everyone feels its effect.
As one of the open banking pioneers in the US, the company also abides by the principles of corporate social responsibility, carrying out regular surveys to keep the public informed. According to the report on Plaid’s website, 58% of respondents claim that they can’t live without the options offered by fintech, let alone 70% confirming to use apps to manage their money.
Interestingly, the company works with about 10k banks, and its approximate value is estimated at $13.4b. With tens of millions of consumers around the world and 5k+ supported applications, Plaid pursues an important mission in the fintech industry. It safely packages the sensitive information acquired via a certain payment or banking app and transfers it through secure channels for further procedures.
Since Plaid’s mission involves digitalising financial services and empowering fintech players, the company continually pops up in the media. For instance, recently it has acquired Cognito, which provides assistance with compliance and identity verification services. Similar acquisitions considerably broaden the influence of Plaid in the market, not to mention that it allows the organisation to offer more secure services. At the bottom, it’s all about customer satisfaction and value, right?
What Does Plaid Do for the Fintech Business in Practice?
Taking into account a number of supported financial apps like Venmo, Acorns, or Betterment, the Plaid fintech company undoubtedly contributes to the evolution of the industry. Say, you need your portfolio aggregator to be processed and analysed for further investment improvement. However, you’re not fond of the idea to share all the information contained in your portfolio with every party involved in the process. Therefore, Plaid ensures seamless integration of financial systems to one another. Every time you need to share your banking or other sensitive data with apps and banks, Plaid takes its part in the play.
Fundamentally, this platform is valuable not only for users. Product owners and developers may also benefit from using Plaid for their software building purposes. Hence, with this solution, developers can safely gain access to financial information from a user’s bank account. In addition, if you’re working on a certain software solution, be it web or mobile, you can sufficiently quickly set up Plaid in React. This will enable you to monitor transactions in a console and connect a bank account to your application. As it turns out, Plaid makes many processes a lot easier and contributes significantly to the safety of fintech procedures.
Is Plaid Safe for Business and Personal Use?
So, is Plaid safe for banking in the way it claims? While processing and transferring customer sensitive information, the Plaid app makes use of the top-notch encryption protocols, including the Transport Layer Security (TLS) and Advanced Encryption Standard (AES 256). Above that, the platform refers to reliable security practices like multifactor authentication (MFA) as well as a bug bounty program. Plaid uses the most sophisticated security technologies possible to provide high-class service for its customers. What the industry gets with its system includes:
- Cloud infrastructure;
- End-to-end encryption;
- Multi-factor authentication;
- Continual monitoring;
- Regular security reviews by independent parties.
What Is Plaid for Banking? — Open Pioneer
Plaid for banking is almost revolutionary. Although banks and the company don’t use a single API, they both avail themselves of Payment Initiation Services (PIS) and Account Information Services (AIS) to ensure workflow smoothness. In particular, Plaid employs open banking technology to initiate payments. Especially after acquiring Cognito, the company is able to provide a full-stack solution to deal with compliance and identity verification more effectively. The primary goal behind the acquisition implies simplifying the onboarding process for new customers willing to link their bank accounts to smartphone applications.
In fintech, it’s all about verification, transaction, security, and compliance. That’s why Plaid’s acquisition of Cognito maximises the value not only for the entire industry but also for end-consumers. Surveys show that 26% of fintech app users entrust their software with sensitive banking information without hesitation, while 56% of respondents say the same about their banks. Given that half, if not more, of the fintech pillars rest on trust, it’s crucial to offer reliable and secure software solutions for your customers. Read on to learn how you can outperform competitors by leveraging safe open banking solutions!
How Does Plaid’s System Work Behind the Scene?
Most banking institutions and their apps have a specific idiosyncratic API and legacy architecture, which makes it incredibly challenging to manage finance via these platforms. Plaid offers a connection layer for you to link and work with banking information without having to deal with not user-friendly interfaces of bank websites or apps. So, what’s going on inside of Plaid when users interact with its system?
- A user downloads a fintech app and fills in their banking details;
- A part of Plaid’s code in the form of a widget inside that software packages the data;
- The code transfers the encrypted information across secure channels to a certain bank’s server;
- When a bank verifies the user’s authenticity and confirms the balance, it pings Plaid in response;
- Once Plaid confirms the user’s account, it authenticates them to make ACH (Automated Clearing House) deposits or other operations with their finances;
For other apps and scenarios, Plaid may use tokenisation, so it’s a sufficiently flexible software solution for open banking operations.
Does Plaid Take Advantage of Open Banking?
The Plaid open banking system is one of the pioneering forces to make financial data open yet protected from theft, phishing, scam, etc. As mentioned earlier, such systems employ APIs to provide open access to financial information between different apps engaged in transactions. Notably, the 9 biggest banks in the UK provide third parties with access to customer accounts in a standardised and safe form. If you intend to launch a fintech business that offers AIS in the UK and be able to use open banking principles, you have to be authorised or registered. Consequently, compliance with the revised Payment Services Directive (PSD2) is a must for working with financial management tools or offering other AIS.
Without a doubt, Plaid reaps all the benefits of open banking in the US and some countries in Europe. To clarify, it’s been authorised by the Financial Conduct Authority under the Payment Service Regulations 2017 to be able to provide payment services. Apart from the acquisition of Cognito, Plaid has also recently partnered with AccountsIQ to guarantee even more connectivity as well as security for all fintech services in the world. Similar partnerships allow customers to carry out payments or manage their banking accounts more quickly and safely. That’s precisely where the open banking philosophy begins to blossom.
What Companies and Financial Institutions Use Plaid?
According to the official website, Plaid clients along with partners include more than 5k+ services and applications, 11k+ financial institutions, and 40k+ developers integrating the platform to third parties. Today Plaid supports such world-known apps as Robinhood, Venmo, Betterment, Acorns, Mint, and many more, let alone large banks like Personal Capital, American Express, Chase, or PNC. A long list of partners, clients, and supported platforms allows Plaid to remain one of the most influential open banking systems in the global fintech market.
The odds are that more and more apps will be supporting Plaid with time, inasmuch as there are not so many major competitors out there. Let’s have a look at players who resemble Plaid’s competitors because it’s difficult to compare all of them equally as their services slightly differ.
- Stripe Connect. This solution ensures a number of unified APIs and other tools that allow businesses to manage as well as accept online payments. Some say it’s more usable than Plaid yet not as global.
- Codat. Expert in SME financial data exchange, this fintech player works with cloud-based microservices solutions that simplify the integration of new software into content management systems.
- Dwolla. This app allows enterprises to accept and facilitate account-to-account, push-to-debit, and real-time payments.
Though these fintech companies don’t actually reflect the whole state of competition within the industry touching upon Plaid, they indicate that no monopoly exists in the area.
Is Plaid Supported in Europe?
When Visa demonstrated its ambitions to acquire Plaid, the picture had considerably changed for a high number of fintech companies. Nowadays, Plaid operates in the UK, US, and Europe, bringing its PSD2 open-banking APIs in their markets. To illustrate, the company is linked with 90 British financial institutions. Although first starting as a wholly US-based fintech solution, Plaid now gains momentum across the European market, winning the loyalty of local banks, financial institutions, and customers. Unlike the American banking industry, Europe has many ‘small Plaids’ across different regions operating only locally. That’s why the company still isn’t a monopolist in the EU.
What Can You Learn from Plaid’s Case?
Plaid’s case sheds light on how entrepreneurs can rapidly identify a vacant niche and fill it with an unexpected solution. The fintech industry is massive and continually requires sustainable innovations. In constant need of working solutions, the financial market is thirsty, so some niches always remain untouched. You can become one of the enthusiasts to occupy them.
And this is exactly where you can receive a helping hand. If you’re inspired by Plaid’s case, contact DashDevs to get a free consultation and build your own fintech system that wins the loyalty of millions!