Key takeaways
- Plaid provides a link so financial institutions can securely share user data with apps and payment services like Venmo.
- You don’t have to create your own account with Plaid, but you can use Plaid Portal to view what types of information you have shared with the service.
- There is no record of any major data breaches, although the company did settle a lawsuit that alleged it had collected too much consumer data.
If you’re trying out an investing or budgeting app, you might wonder why you’re being asked to enter your bank login with something called Plaid. Don’t be confused -- this is not an invitation to put on that patterned shirt in your closet. Instead, it’s a notification that you’re about to share your data with a service that connects financial apps with consumers’ bank accounts.
If you haven’t used Plaid before, you might be concerned about whether the company is legit. So is Plaid safe? Based on the service’s acceptance rate, you can feel relatively confident. More than 12,000 financial institutions and more than 8,000 apps and services count on the Plaid to securely share information.
Read on to learn more about how Plaid works, what the company does with your data and what steps it takes to protect your information.
How does Plaid work?
With your permission, Plaid allows a financial app or service to access information from your bank. Think of Plaid as the go-between, encrypting and protecting data as it’s sent from your bank to the app or service.
For example, let’s say you want to use a new budgeting app like YNAB. Instead of manually entering your account numbers and routing numbers for your different bank accounts and inputting your transaction histories, Plaid will automatically share the data with YNAB so it can analyze your earning, spending and saving patterns to develop a roadmap for your finances.
Is Plaid safe to use?
Anytime you’re doing anything with your banking information, you need to focus on the security features that will keep that information out of the hands of bad actors. Here’s a rundown of the key features that help make Plaid safe:
- Login and password protection: You’ll need to enter your username and password for your financial institution to allow Plaid to share the account info. However, Plaid’s website says it doesn’t share your login info with the apps.
- Best-in-class encryption: While Advanced Encryption Standard and Transport Layer Security are terms that may not mean much to people who don’t speak cybersecurity lingo, they are both signals of Plaid’s efforts to keep all information as secure as possible while it’s being transmitted. It’s all encrypted, meaning that outside parties cannot view your info while it’s in transit.
- Multifactor authentication: When you share your details with Plaid, expect to get a text on your phone as well. The confirmation is an additional layer of security to help Plaid verify that it’s really you. Plaid says that “almost all logins” have multifactor authentication.
- Regular audits:. By inviting third-party scrutiny, Plaid can regularly and independently test its application programming interfaces (API) and security controls.
Additionally, Plaid says it does not sell or rent consumers’ financial data.
How do I use Plaid?
You don’t really have to do much to use Plaid. The reason the service exists is to sync your personal financial data with a new company without requiring more setup on your end. If you’re using Plaid, however, you’ll know because a popup window informs you that you will be giving Plaid permission to share certain types of data with the app or service. If you agree, you’ll enter your bank login information and Plaid will connect the two systems.
If you want to know what kinds of data you’re sharing via Plaid and with what companies, you can create a Plaid Portal account. You’ll share your phone number and Plaid will scour its service to display the connections you have through the service.
Can Plaid see my bank account balance and other financial data?
Once you enter your bank login details, Plaid may be able to view your account balance and share those details with another service. For example, if you’re applying for a personal loan or using a new budget app, the lender or the app provider will likely need to know your account balance.
Other pieces of data that Plaid can collect, use and share with other providers includes:
- Name, mailing address, phone number and email address
- Transaction history including date, amount, type, and full description of each purchase, withdrawal or other transaction
- Account name and account type
- Account number
- Routing number
- Real-time balance
In the past, Plaid has gotten into trouble for collecting too much data: The company settled a class-action lawsuit for $58 million that alleged Plaid was collecting more information than it needed.
Can I choose what information to share with Plaid?
When Plaid asks for your bank login information to connect your account with another company, you’ll get a clear rundown of the types of information that will be shared.
Additionally, you can submit a request to delete your data and eliminate connections with other services via Plaid’s Privacy Request Form or within the Plaid Portal.
Are there safer alternatives to Plaid?
Plaid may not be your only option for connecting your bank account, depending on the service. For example, if you don’t want to share your data with Plaid for account verification with Venmo, you can opt for a manual process that includes microtransactions -- small deposits and withdrawals. Apps may partner with alternative data connection services such as MX, TrueLayer or Finicity to share your information. It’s tough to say whether any of these are actually safer than Plaid; they may just offer a different user experience, and depending on your financial institution, they might be easier.
The bottom line
In a world where it seems like a new data breach makes headlines every day, sharing your financial information with any company can feel very stressful. However, Plaid’s security protocols seem designed to alleviate a lot of those concerns.
FAQs
If you want to use an app to help manage your finances or make payments, that app requires a digital connection to your bank to share your data. Creating and maintaining secured connections with thousands of financial institutions isn’t feasible for most apps. Instead, they use a service like Plaid, which builds and maintains connections for more than 12,000 financial institutions.
Depending on the app, you may have the option to use alternative data connection services or to use a manual process to share your information.
Venmo uses Plaid to instantly verify your bank account information. By entering your username and password for your online banking portal, Plaid is able to let Venmo know your essential details -- your bank account number and routing number -- to let you send and receive money.
Plaid acts as a middleman that links your bank with whatever app or service needs your account information, so you don’t need a standalone Plaid account. If you want to know what information you have shared with Plaid, however, you can create a Plaid Portal account that will give you an overview of all the data.
While no company is 100% immune to data breaches and online hackers, Plaid is used by thousands of financial institutions for protecting and transmitting sensitive information. The company follows rigorous security protocols to safeguard your financial accounts including best-in-class encryption and multi-factor authentication for the vast majority of transactions.