Plaid: Friend or Foe

Whether customers are banking online with a big bank or trading stocks on sleek mobile platforms, their expectations for a smooth and seamless experience are constantly increasing. That’s why banks and fintech startups alike need to partner with the right companies on the back-end to make sure that their digital platforms can quickly and easily access the right data when they need to.

That’s where a company like Plaid steps in. Originally born out of a financial management and recommendation tool, Plaid eventually realized the need to provide fintech developers with an open Application Program Interface (API) that marries back-end bank data with front-end systems. In short, Plaid seamlessly connects applications with their users’ financial data housed in legacy banking systems. Without such technologies, accessing banking information within a third-party application would be nearly impossible.

Plaid has been so valuable to both banks and startups that the firm recently closed a new $44 million funding round led by Goldman Sachs to help grow the platform.

But is Plaid’s open API a boon to banks, or a threat to their survival? Let’s dive in and find out.

THE GOOD
Plaid’s platform and tools enable developers to interact with bank accounts to build financial applications. Plaid’s customers include fintech apps like Robinhood and Betterment, which rely on Plaid to give them access to back-end bank data. These applications can then access customer account data at their bank when providing mobile and web services like budgeting, investing and lending. Plaid also facilitates tokenized ACH transfers for payment processors like Stripe.

Plaid works in direct partnership with banks to make sure their customers can utilize apps like Betterment in conjunction with their accounts. However, Plaid is open (and interested) in broadening its footprint to work with banks of any shape and size in the future. And in so doing, banks that partner with Plaid give their own developers better tools to create apps that mimic the user experience of startups like Betterment and Venmo. That’s a win for banks since Plaid opens the door to developing apps in-house that could compete with fintech startups.

THE BAD
From its inception, Plaid has been focused on helping fintech startups connect their applications with banks to power their core businesses. Currently, Plaid works with thousands of U.S. banks, spanning the largest financial institutions to credit unions, whose customers want to use some of the popular apps powered by Plaid such as Venmo and Acorns.

The bottom line is that, while Plaid’s API is powerful and forward thinking, it needs to develop a track record of success with some of its larger partners in order to gain greater adoption. Plaid also needs to make a concerted effort to reach out to smaller banks and credit unions to draw those customers into the modern fintech ecosystem, with access to many of the newer apps we’ve discussed.

OUR VERDICT: FRIEND
Plaid is up against some stiff competition in the fintech API space, but its future in relation to big banks appears to be friendly. From what we’ve seen so far, Plaid is committed to working in tandem with big banks. By providing tools and resources for application developers and big banks, and expanding the number of institutions they partner with, Plaid is showing that it’s committed to a fintech future with banks still playing a huge role. Ultimately, it’s in banks’ best interests to better serve clients with better access to data, reduced online banking friction and internal innovation. And it looks like banks that work with Plaid in the future can achieve just that.