What Is Plaid and How Does It Work?

What is Plaid?

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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, number and 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:

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• 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.

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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.

When you connect your financial data to an app or service, they pay Plaid. For example, when you add a bank account to Square Cash, they pay us a fee.

Plaid is free for everyone who uses a Plaid-powered app, allowing you to securely connect your bank account to the apps you want in just a few seconds.

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