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When you connect your bank account to financial apps like American Express, Venmo, or Upstart, you will likely encounter Plaid. Plaid is responsible for authenticating your financial information, allowing companies to securely transfer sensitive information. It is considered safe to use because it employs advanced security and encryption protocols to protect your data during transmission. Additionally, Plaid never shares personal information without permission.
Plaid's software acts as a middleman between your bank or credit card accounts and other financial company apps, such as Personal Capital or Mint. These types of apps require access to your account information to function properly. It is understandable to feel hesitant about sharing your sensitive financial information with another company.
Plaid serves as a solution to this problem. Instead of providing Mint or Personal Capital with your entire bank login information, Plaid acts as an intermediary. Plaid currently partners with numerous major banks and credit card companies such as Bank of America, Wells Fargo, American Express, and U.S. Bank.
How does Plaid operate?
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Let's take an example where you want to connect your Chime bank or credit card account with another finance app using Plaid. When prompted with a Plaid window, you will enter your Chime username and password and submit the form.
Plaid stores this information and contacts Chime to verify your login credentials. If you have set up two-factor authentication (2FA), you will enter that information as well. Plaid also has its own 2FA option in case your bank does not support this extra layer of security. According to its website, Plaid is certified in internationally recognized security standards such as ISO 27001, ISO 27701, and is SSAE18 SOC2 compliant. Once Plaid has authenticated your bank information, the connection is established, and you can authorize the transfer of financial information, such as transaction history, balance, or other details.
Sezzle, an installment payment platform, recently announced that it uses Plaid for financial authorization. Through this partnership, Sezzle customers can connect their financial accounts via Plaid, enabling them to make payments more efficiently using Automated Clearing House (ACH) instead of a credit or debit card.
Plaid has recently reached a settlement in a class action lawsuit. As part of the agreement, Plaid has agreed to pay $58 million to users of its interface, including Venmo, Robinhood, and Coinbase. The lawsuit was based on Plaid's practice of acquiring more data than it required and storing users' bank account login credentials on its own systems.
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Can Plaid be considered a safe service to use?
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Plaid claims to prioritize the security of its customers' financial data, as do most companies that handle such information. When transmitting financial data, Plaid employs encryption protocols such as the Advanced Encryption Standard (AES 256) and Transport Layer Security (TLS). The use of these security measures when transmitting your data can provide you with an additional level of confidence.
Aside from employing best-in-class security protocols for data handling, Plaid adheres to numerous other security best practices to ensure the safety of your information. Plaid's Trust and Safety page outlines that it:
- Implements multifactor authentication (MFA) to enhance the security of your account if your financial institution does not provide it
- Maintains a bug bounty program to involve more security professionals in identifying potential vulnerabilities in Plaid
- Assures that your data will not be shared without your consent, and that it will never be sold or leased to other entities
- Empowers you to manage which companies can access your data and which specific data is shared with each of them.
What exactly is Plaid?
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Plaid is a software that acts as a mediator between your financial information and the financial websites where you want to share your data. By using Plaid, you can prevent these sites from having access to all of your banking and other financial information. Instead, you can choose to share only the specific information that you want to provide.
How does Plaid function?
Several financial companies may require access to some of your financial information for legitimate reasons. For instance, a portfolio aggregator may need to view your investments, or a budgeting website might need access to your credit card and bank transactions. With Plaid, these websites can access your required information without the need to obtain your bank or credit card login credentials.
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Can Plaid be considered a secure platform?
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Plaid employs some of the most advanced encryption protocols to safeguard the transmission of your financial data. These protocols include the Advanced Encryption Standard (AES 256) and Transport Layer Security (TLS). Additionally, Plaid incorporates multifactor authentication (MFA), which enhances the security of your financial data transmission by providing an additional layer of protection.
What could be the reason why my Chase account is no longer linked to Plaid?
Previously, Plaid provided support for linking to Chase accounts, but it is no longer featured on their website as a supported financial institution. There has been no official communication from Plaid regarding the termination of their agreement with Chase.
In summary
Plaid is a fintech firm that enables over 4,500 companies to connect their users with various third-party financial apps like Venmo, Acorns, Betterment, and others. When using Plaid with a third-party app, you authenticate by directly providing your bank login credentials. Your username and password are not shared with the third-party app; instead, it receives confirmation of a successful login and only views the data you authorize.
Although entrusting an external company with your sensitive financial information may raise concerns, Plaid asserts that it prioritizes security. It doesn't rent or sell users' financial information and allows users to have complete control over what data is shared with each company.
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Source: https://www.investopedia.com
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