What Is Plaid and Why Is It Important in Banking

by Kenneth Medford

I’ll be 100% honest with you; modern technology is all witchcraft to me. The idea that data is floating around my head 24/7 is a concept I can’t wrap my head around and attempting to understand it would keep me awake at night (and I LOVE my beauty sleep). What I do understand is there are a myriad of dangers out there in internet land and there are some stand-up individuals and companies that work to protect us from the bad people and things that lurk the interwebs. 

That’s why companies like Plaid are so important to finances and banking in this digital age. If you’re like me though, it’s probably a bit difficult to understand how. Well, take this walk with me. I’ll show you what I’ve learned about how Plaid works, why they even need to exist, and arguably most important, how they handle your ever precious data.

How It Works

So, how exactly does this magical protection spell work? Basically, Plaid acts as a security shield between you and whatever financial app (nav.it) you want to use. Let’s say, for instance, you want to use Venmo for sending and/or receiving money. Plaid plays the bridge between them and your bank account so no one place has ALL your data. 

Your username and password for your bank are never actually shared with the financial app so no one can backdoor their way to your money if things go left. And, if you don’t believe them, they are audited by 3rd party researchers, financial institutions, and app developers just to make sure everything is on the up and up. My favorite part of all of this: the bug bounty system. If any old Joe happens to find a bug in the Plaid API (application programming interface), you can turn in your findings for a bounty. They are actively encouraging people to try to find flaws because they’re so confident in their product. That’s the kind of swag I want to see out of someone watching my money.

What does this all mean for you? It means that you can focus on your financial wellness instead of cybersecurity. You can feel safe using Venmo, Acorns, Nav.It and more to help you organize your money and keep a close eye on how it’s moving. As we all know, keeping tabs on how your money is being spent is a core tenant of maintaining a good budget and this level of security allows you to put down the pen and pad and monitor it all in realtime.

Why They’re Even Here

“But can’t my financial app just connect directly to my bank? Why do we have to get another company involved?” I hear you asking, earnestly confused but trusting that I will have the answer. Well, thank you for your good faith, for I do have the answer you seek. 

The issue here lies with how different companies structure their data. Bank A may do things one way, App A in another. Now take that idea and consider the over 10,000 different financial institutions that need to connect to the ever-rising number of financial apps. It’s simply not feasible for them to have the security they need AND be plug-n-play with such a variety of applications. 

I mean come on, we can’t even get universal chargers for our cell phones or electric vehicles and this is almost as important. That’s why a company like Plaid is so important. They can dedicate their time and resources to being the “adaptor” between the banks and your favorite app. This allows the banks to do what they do and the app to focus on new ways to make your experience the best it can be. 

This is just another benefit for you. Behind your tiny black mirror, you get a team of tech wizards dedicated to making sure you can take control of your financial wellness while being safeguarded from the dark side of the web. These connections give you the most accurate numbers so you can better plan your next moves without having to jump back and forth between multiple platforms. Bridge programs like Plaid make what is normally exhaustively stressful, super easy, barely an inconvenience #RyanGeorgeVoice

How They Handle Data

Well this is really it, isn’t it? With eyes on social media and the way they use our data, consumers are ever concerned with how companies handle their data. Plaid is all about security first. Their data encryption is two-fold, with TLS (Transport Layer Security) to protect information as it travels between servers and AES (Advanced Encryption Standard 256) for any data that needs to be stored for any period of time. Even IF their system is compromised, actually retrieving your data would be a Swordfish level task. For those that don’t know that movie, it’s going to be really REALLY hard (but you should totally see that movie. John Travolta, Hugh Jackman, Halle Berry, and Don Cheadle. . .it’s pretty dope). 

Layered on top of that is Multi-Factor Authentication (MFA) which gives deeper protection beyond just your username and password to lock out unauthorized access. Their partnership with cloud computing companies adds yet another layer of 3rd party security. The Plaid API and its related components are all cloud-hosted which essentially means you’d have to go through two companies worth of defenses to even have a shot at someone’s info. I legit imagine Plaid’s security having more levels than a Dragon Ball Z villain has transformations.

This is more of the techy side of it but this just goes to illustrate my earlier point: you focus on your money, they’ll handle the rest. You can feel confident that as you utilize these various apps to exercise and improve your money mindset, no weapon formed against your stacks shall prosper. In uncertain times like these, finding security anywhere provides peace of mind that is in short supply especially in terms of finances. 

What’s it all mean?

It means Plaid is at the heart of cash flow basics (the total amount of money being transferred into and out of a business, especially affecting liquidity). Any blind spot in your financial vision means you can’t possibly make the best decisions for you and your business, just ask Neji from Naruto. Having this type of secure connection to your financial institutions will give you the full 360° perspective you need to eliminate as many variables as you possibly can.

Let me put it in an even simpler way; close your eyes and think of your favorite brand. You know if you see their name, you’re getting quality, you’re getting the most bang for your buck, and you know you don’t have to question anything about what you’re getting.

Next time you find a finance app and you see Plaid come up, you should have the same warm and fuzzies. Consider them a stamp of approval on places you can feel safe getting your swole on with a little financial fitness. Maintaining a good budget, investing, saving, and donating all powered by Plaid. Isn’t that nice of them?

Related Reads

Connecting Your Account

Automated Savings

Get Your Financial Life Together

Five Money Myths Holding You

Writer, rhymer, gamer: the easiest way to define the man known as Kenneth Medford. I’m a simple man who loves to learn and loves to help and I wander the digital world trying to find ways to sate my hunger for both. Basically, I’m Galactus but helpful.

Check out my other work here or reach out to me on LinkedIn.

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