Plaid: The Bridge Between FinTech Apps and Banks

Plaid helps people connect their bank accounts to financial apps and other digital services. Through enabling apps to connect with users’ bank accounts, Plaid makes mobile transactions more accessible and safer. It powers more than 3,000 FinTech services and connects with more than 11,000 financial institutions in the US and Europe.

As modern technologies sneak their way into our lives, dependency on IT systems for our day-to-day functioning is becoming the norm. From working and shopping to healthcare delivery, mobile and web solutions have become almost as fundamental for our everyday lives as breathing. Even though this phenomenon has been happening for some years, the COVID-19 pandemic accelerated our dependency and reliance on these systems, especially mobile financial services. Simply put, these mobile services revolve primarily around using our bank account to transfer money and pay for stuff. As a result, our bank accounts or credit cards have essentially become the hub of our financial lives. This way, we, as consumers, need interconnectivity between our accounts and the online services we use every day to pay, transfer, sell, and buy. 

However, digital banking systems worldwide are somewhat disjointed, and Open Banking isn’t widely adopted enough to enable seamless transactions between financial institutions and third-party apps worldwide. The easiest way to bridge this gap is via an Application Programming Interface (API), which allows the connection between apps, banks, and a user’s account. APIs give access to payment data and authenticate users while also reducing security hazards. Most API-based financial ecosystems deliver reliable services that can propel a faster consumer adoption of FinTech products. 

Most mobile banking services have now become necessary lifelines, and those that work do so seamlessly thanks to companies like Plaid. When we use our phones to complete a purchase, transfer money, or apply for a loan, chances are some of these services have been facilitated by Plaid. Since launching in 2013, Plaid has leveled the mobile banking playing field by connecting FinTech and other app types to virtually every financial institution. What was first conceived as a simple consumer payment API has now evolved into a robust platform that offers a seamless transfer of data from bank to application.

What is Plaid?

As personal finance apps keep spawning left and right, FinTech app developers need more straightforward and faster ways to safely connect and access their users’ bank accounts. However, making these connections is a problematic endeavor because thousands of different banks exist out there with various APIs, architectures, UI/UX, policies, and requirements. There are more than 11,000 financial institutions in the US alone, and they all have varying structures and manage their data differently.  Also, most banks are built on legacy systems, which means that their IT structure is outdated, and it isn’t always easy to communicate with them. As a result, FinTech developers face a daunting challenge when they want to connect to banks programmatically. Building this connection to a single bank can take a lot of development time and expertise; doing that thousands of times more is almost impossible. Here’s where Plaid comes in. 

Founded in 2013, Plaid is a San Francisco-based FinTech company that provides APIs that act as intermediary links between a user’s bank account and financial apps. Plaid provides developers with a series of smooth and secure APIs for quickly connecting and integrating their applications with banks, saving time and costs for engineering and development teams. Simply put, they allow popular apps such as Venmo and Chime to offer their mobile financial services without programming all the IT infrastructure themselves. This way, Plaid has become the sorcerer’s stone for FinTech apps and developers. It has bridged the gap between traditional and modern financial services and fostered innovation and accessibility for the sector.

Plaid works mainly behind the scenes as an infrastructure technology product, which is probably why the name Plaid doesn’t ring a bell for most, if not all, app users. It quietly powers everything from popular peer-to-peer payment apps like Venmo and mobile investing apps like Robinhood to cryptocurrency exchange apps like Coinbase

Moreover, Plaid provides a connection layer for developers to quickly and safely work and connect with bank accounts and a simple UI for users to log in. Additionally, more than 80% of the world’s largest Fintech firms are silently powered by Plaid’s groundbreaking APIs, including Acorns and Betterment, plus the ones mentioned above.

 Plaid works with companies based in the US, Canada, and Europe. Since its birth, it has connected nearly 3,000 financial applications to virtually every large financial institution, all through a single API. They offer relevant developer tools to perform data transfer from bank to application seamlessly.

Here are some of the products that developers have access to when integrating with Plaid's APIs:

  • Authentication: Instantly authenticate bank accounts for payments. 
  • Transactions: Gives access to detailed transaction history.
  • Balance: Verifies real-time account balances and protects users against overdraft fees.
  • Identity: Verifies users’ identities and reduces security risks. 
  • Investments: Gains insight and retrieves users’ investment accounts, data, balances, holdings, and transactions.

Liabilities: Access liability data for student loans, credit cards, and mortgages.

How Does Plaid Work?

Plaid does most of the heavy lifting on a FinTech app’s back-end, saving time and costs for developers who otherwise would have to program ways to connect their apps with several different banks. Plaid’s APIs allow developers to link their app users’ bank accounts to countless apps, websites, and other digital services that handle payments or transfers. This way, Plaid acts as a layer on top of the current financial infrastructure. 

Plaid is designed to enable developers to connect with bank accounts, execute payments, check balances, and manage security risks when building FinTech apps. When users’ bank accounts are linked to any app powered by Plaid’s APIs, it takes the login credentials, encrypts the requested financial data, and then safely supplies said data to the app and its user while maintaining total security and control. Their APIs also allow developers to create better and faster ways for users to easily authenticate and link their bank account to any Plaid-powered app.

On the user end, Plaid provides the interface that app users see when the third-party app connects with their banks for payment. If you’re a Venmo user, for instance, and you want to make a payment with your account on Chase Bank, the login page you see for entering your bank’s login credentials was not developed by Venmo; it’s from Plaid. This way, Plaid targets developers and back-end matters and also takes care of the entire integration process, so the app runs smoothly from all ends. This benefit gives developers visibility of the whole data flow while encrypting and keeping users’ login credentials secure. They also guarantee that users control their data, and they don’t sell or share it without the owner’s permission. 

When Plaid launched, only a few banks in the US had their external APIs that allowed users to link their accounts to third-party apps. Luckily, Plaid entered the FinTech game and grew to power nearly the entire US banking market.

Plaid for FinTech Developers

Plaid’s direct consumers are developers and programmers who want to power their digital products with easy-to-implement, powerful APIs and make their lives easier. Plaid’s APIs enable developers to layer different tools inside an app without having the time or expertise to build these tools and integrations from scratch. Here’s where Plaid becomes relevant for making developers’ jobs easier. It completely annuls the annoying fact that each bank has different APIs for handling payments and delivers a layer of abstraction that lets developers rise above that. They take the load off having to program and implement directions into each bank’s specific language, and they, in turn, deliver a single endpoint for every bank.

Additionally, Plaid also handles the security of the connection to bank accounts when pulling out the needed financial data. They pull out user data using encrypted, protected tokens that guarantee the shielding of the account information from all sides of a transaction. Plaid’s APIs use Advanced Encryption Standard (AES) for any stored data and Transport Layer Security (TLS) for data in transit between apps. Furthermore, Plaid uses a cloud infrastructure built with a security-first approach in mind, using their technologies that provide a flexible and responsive safety approach. Multi-factor authentication (MFA), 24/7 monitoring, and independent security testing are other security protocols that Plaid uses to give developers instant support for potential issues and keep users’ data safe.  

Plaid also gives developers access to smooth, scalable APIs they can connect to and integrate with any number of banks they can think of, regardless of the bank’s specifications. Moreover, they give developers the ability to get set up instantly in their dashboard, and with just a few lines of code, Plaid can be implemented in any FinTech app in as little as an afternoon.

Plaid also has a great set of documentation files for developers with countless resources and libraries to make the integration process smooth and as straightforward as possible. They now offer Plaid Link, a tool to help developers further simplify the integration process with Plaid’s APIs.

• Plaid Link

Plaid Link is a quick, more simple, and secure way to integrate with Plaid’s APIs, allowing developers to focus on building their product instead of spending extra time integrating with APIs. Link is a drop-in module that takes care of security protocols such as credential validation, MFA, and error control, all with zero server-side code. It is automatically updated with new products, and no code modifications are required on the developer’s end. Plaid Link provides complete integration with third-party apps with only a few client-side code lines, which gives developers control over the flow within their app. It also represents a way to implement a simplified navigational flow for users that reduces the number of steps it takes to connect the app with their bank accounts.   

Plaid Exchange

These past years, the banking industry has made strides in establishing partnerships with FinTech companies. This newfound partnership means that banks now have to stop limiting third-party access to user data. They need to get with the Open Banking program to drive customer engagement forward. As a result, banking institutions will have to integrate their services with third-party apps and dive into the API pool sooner or later. However, not all banks have the funds and resources to build their APIs, primarily when it is known that developing an API in-house could be a four-year endeavor that could cost between $10 million and $20 million per year. With this in mind, Plaid introduced Plaid Exchange.

With Plaid Exchange, banks can implement their API system without the high costs. Before Exchange, Plaid’s APIs had to rely on screen scraping to connect to banks through a web browser that runs on Plaid’s server and saves user information. However, if the website is updated, then the data sharing fails, and the integration can break, making screen scraping inefficient. With Exchange, apps connect directly with the bank through the API. Additionally, banks can access a modern token-based security system for their customers while giving them visibility and control over how their personal information is shared and how their accounts are connected.

Final Thoughts

Plaid represents the perfect gate-lifter to bridge the gap between FinTech and traditional banking services. Developers, who are the architects of the FinTech apps that connect with banks, are Plaid’s number one beneficiaries. We are the ones that can keep these modern approaches growing. Moreover, in trying times, such as the pandemic, when people need remote access to banking systems, companies like Plaid are the drivers behind the technologies that enable users to control their financial lives. Consumers turned to FinTech to look for alternative ways to manage their finances without physical bank branches or in-person payments. In return, companies like Plaid provide the tangible benefits of using FinTech apps, and users realize that remote banking may become the new normal.

At Foonkie Monkey, we are always at the forefront of the latest technologies and tools to make our products always better. If you have any questions about Plaid or want us to work on our project, don’t think twice about contacting us!

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