OCTOBER 23, 2023
10 min read
You probably have an exceptional idea for a fintech startup, one that has the potential to transform the financial industry. However, there’s a challenge. You may not be well-versed in integrating various tools and technologies in your future product, including solutions like Plaid, which are essential in fintech.
This is a common barrier that many developing fintech entrepreneurs encounter. It’s a knowledge gap that can make it intimidating to navigate the constantly changing fintech landscape and establish yourself as a leader in the market. But don’t worry. With the proper guidance, your innovative vision can become a reality. Keep reading and you’ll find a way to enhance your product with innovations.
So, what is Plaid, after all?
Initially launched by American founders Zach Perret and William Hockey as a bookkeeping and budgeting platform, the Plaid banking app is present not only within the US. Its services echo around the UK, Spain, Canada, Netherlands, Ireland, and France. Hence, Plaid online banking is available beyond the country of origin to bring even more security to European financial and banking systems.
Technically, Plaid and its competitors like MX, Dwolla, or Stripe Connect take 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? Considering that the most renowned global fintech banks work with this platform, the answer is more ‘yes’ than ‘no.’
Today, Plaid is one of the most famous open banking players to operate internationally. According to Statista, the number of open banking users worldwide in 2024 will reach 132.2 million. 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 endeavor, 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 worth trying this platform!
What Is The Role Of Plaid In Fintech?
Headquartered in San Francisco, California, and founded in 2013, the company operates as a financial services organization specializing 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 Plaid’s report, 58% of respondents claim that they can’t live without the options offered by fintech, and 70% confirm using apps to manage their money.
Interestingly, the company works with about 10k banks, and its approximate value is estimated at $13.4 billion. With tens of millions of consumers worldwide and 5k+ supported applications, Plaid pursues an important mission in the fintech industry. It safely packages the sensitive information acquired via a particular payment or banking app and transfers it through secure channels for further procedures.
Since Plaid’s mission involves digitalizing financial services and empowering fintech players, the company continually pops up in the media. For instance, Plaid has launched Beacon, a network that helps fintech companies combat fraud.
The idea behind Beacon is that banks have networks to share fraud information, but most other companies lack these tools.
With Beacon, fintechs can report instances of fraud. Members share information about various types of fraud, such as stolen identities or fake accounts. Plaid collects this data and spreads this info with the network. Fintech companies can then check new signups or users against the Beacon network to see if any are associated with fraud on other Plaid-powered platforms or within their organization.
If a fintech company reports that a stolen identity was used to sign up for one of their accounts, and then the same stolen identity is used to sign up for another fintech service, Beacon allows the business to investigate the situation and protect both the company and its customers from potential fraud.
What Does Plaid Do for the Fintech Business in Practice?
Considering several 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 analyzed for further investment improvement. However, you prefer to keep the information in your portfolio private from every party involved. Therefore, Plaid ensures the 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.
This platform is valuable not only for users.
Product owners and developers may also benefit from using Plaid for their software-building purposes.
- This solution allows developers to access financial information from a user’s bank account safely.
- If you’re working on a specific 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?
While processing and transferring customer-sensitive information, the Plaid app uses 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) and a bug bounty program.
Plaid uses the most sophisticated security technologies to provide high-class customer service. 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.
Plaid’s API facilitates a seamless interconnection between applications and bank accounts so that no information is lost or skipped. Utilizing this platform, you can tweak what information is displayed through it. For example:
- account profile information;
- investment holdings;
- interest rates;
- student loans;
- account and routing numbers;
- credit card balance.
Besides, it won’t allow the app to sell your or your customers’ private data to other parties. Well, it sounds safe enough, doesn’t it?
What Is Plaid For Banking?
Plaid is a fintech company that provides a secure platform for other financial apps to connect with clients’ bank accounts. Your fintech application can include various features, such as savings, investments, payments, or borrowing.
Plaid acts as an intermediary, allowing the apps to access customers’ financial information only after explicit permission and ensuring that all their sensitive financial data is encrypted and stored safely. Plaid protects all customer information from potential security breaches and makes your life as a business owner much easier since you don’t have to worry about security.
Plaid for banking is almost revolutionary. Although banks and the company don’t use the same API, they both avail themselves of Payment Initiation Services (PIS) and Account Information Services (AIS) to ensure workflow smoothness. In particular, Plaid uses Real Time Payments (RTP) network to help fintech businesses speed up banking payments. RTP allows businesses to eliminate the old money transfer system called Automated Clearing House (ACH). RTP allows instant transfers, while ACH transfers take 1 to 3 business days.
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 happens inside 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 specific 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 deposits or other operations with their finances.
Plaid may use tokenization for other apps and scenarios, 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, 9 biggest banks in the UK provide third parties with access to customer accounts in a standardized and safe form. If you intend to launch a fintech business that offers AIS in the UK and can use open banking principles, you must be authorized or registered. Consequently, compliance with the revised Payment Service Directive (PSD2) is necessary to work with financial management tools or offer other AIS.
Without a doubt, Plaid reaps all the benefits of open banking in the US and some European countries. To clarify, it’s been authorized by the Financial Conduct Authority under the Payment Service Regulations 2017 to be able to provide payment services.
Apart from acquiring Cognito, the identity verification program, Plaid partnered with AccountsIQ to guarantee even more connectivity and security for all fintech services worldwide. Similar partnerships allow customers to make 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 8k+ services and applications.
- 12k+ financial institutions.
- 40k+ developers are integrating the platform with 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 support Plaid with time since few major competitors are out there. Let’s look at players who resemble Plaid’s competitors because it’s difficult to compare 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 and 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 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?
Yes, Plaid is supported in Europe. Plaid has expanded its reach from the United States to the UK, US, and various European markets. The company keeps “making friends” with local banks, financial institutions, and customers in Europe.
Now, let’s talk about some exciting recent changes. In the UK, the FCA updated the reauthentication rules last September (2022). Plaid made these changes for its UK customers, creating a smoother and less disruptive user experience. They made it easier for people to use their favorite apps.
The European Banking Authority (EBA) has introduced some significant changes. They’ve decided to extend the “reauthentication rule” from 90 to a more convenient 180 days. So, what does this mean in practical terms? When people link their bank accounts to fintech apps through open banking, they grant permission and may need to verify their identity and confirm the authenticity of their documents. This used to be a 90-day routine in Europe, but now, users can do it once every 180 days.
Importantly, this rule change doesn’t apply to only one country; it’s a shift for all EU member states. So, whether you’re in France, Germany, Spain, or any other 15 EU countries where Plaid operates, you’ll experience these positive changes. This transformation makes using fintech apps and services in Europe more seamless and secure for everyone.
What Can You Learn From Plaid’s Case?
Plaid’s case sheds light on how entrepreneurs can rapidly identify and fill a vacant niche 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 remain untouched. You can become one of the enthusiasts to occupy them.
If you are a fintech startup, integrating tools like Plaid into your product is pivotal. It’s a popular choice for simplifying open banking and is often the linchpin for many of our customers. If you want to set up Plaid integration for your fintech product, we’ve got you covered.
At DashDevs, we have extensive experience in setting up Plaid integrations and others. Our expertise can help you seamlessly connect your fintech product with Plaid, ensuring you harness its power to access vital banking data securely. Plaid’s capabilities can be a game-changer for your business, and we’re here to guide you through the process.
To learn more about how we can assist you with Plaid integration and other fintech tools, visit our Fintech Integrations page. We’re ready to make your fintech journey as smooth and successful as possible.
And this is exactly where you can receive a helping hand. If Plaid’s case inspires you, contact DashDevs experts to get a free consultation and build your fintech system that wins the loyalty of millions!