What Is Plaid and How Does It Work?

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 to access services or products like Venmo, Chime, Acorns, Truebill, or NerdWallet's app. The type of data shared may include your account number, account transactions, and contact information.

Here's what you need to know about Plaid.

Plaid: The Basics

Plaid acts as a middleman by connecting your financial accounts to eligible apps and services of your choice. According to Plaid, it makes sense for these connections to be managed by a third party due to the complexity involved.

According to 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 are using, Plaid may provide the following data points:

• Account holder information: Your name, address, number, and details at the financial institution could be requested.
• Account transactions details: Information may include balances, transaction dates, types of transactions, and descriptions.
• Account-specific details: Your account name or type, account number, routing number, and balance may also be shared.

If a single username and password unlock access to multiple accounts like a checking account, savings account, and credit card, information from all accounts may be shared with the selected app or service.

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 using such an 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 prompted to provide your information, you will 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 earlier. This information is then shared with the app or service you want to use.

As a consumer, Plaid does not charge you to use this service. The app that requires the financial data pays Plaid a fee.

Plaid’s network includes over 10,000 financial institutions eligible to use its service; however, not all accounts may be connected through Plaid. Your financial institution may not support or allow third-party connections.

Where Plaid is Used: Examples

Plaid has various use cases. It can be used to evaluate credit, verify income, or confirm sufficient funds for peer-to-peer payments, among other functions.

Some examples of institutions that use Plaid include:

• NerdWallet: The NerdWallet app allows you to track your net worth, cash flow, credit score, and more, but you need to link financial accounts through Plaid to access that information.
• Venmo: The mobile app for peer-to-peer payments requires you to verify a bank account through Plaid by entering a username and password for your online bank account to ensure there are sufficient funds for a transaction.
• Chime: By providing Plaid with login credentials to an eligible external bank account, you may be able 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 to provide a comprehensive view of your finances.

The Bottom Line

If an app, service, or product requires linking an account through Plaid, you don’t need to create a new account or pay for the service. As long as you follow the prompts in the app you’re using, like entering a username and password for an eligible bank account, Plaid can potentially link and share financial information.