How does plaid authentication work?

You'll probably run into Plaid when you connect your bank account to apps run by financial services like American Express, Venmo, or Upstart. Plaid authenticates your financial information, permitting companies to transfer sensitive information securely. But is Plaid safe? Yes, it's considered safe to use. That's because it employs advanced security and encryption protocols to protect your data during transmission. Plus, it never shares personal information unless it has permission to do so.

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Plaid acts as a bridge between your bank accounts and various financial apps you might be using, such as budgeting tools or investment platforms. Financial services providers, whether it’s a wealth management website or a budget tracker, require access to your account details to function effectively. Understandably, this situation may cause concern regarding the safety of sharing sensitive financial data with third-party services.

This is precisely where Plaid is beneficial. Rather than divulging your complete bank account credentials to services like YNAB or Personal Capital, Plaid seamlessly operates in the background, establishing a secure connection. Presently, Plaid integrates with numerous leading banks and credit card providers, including big names like Bank of America, Wells Fargo, and U.S. Bank.

For instance, if you wish to link your Chime bank or credit card to a financial app, you will encounter a Plaid interface. Here, you'll be prompted to enter your Chime username and password. Rest assured that this information is retained exclusively within Plaid, which will independently reach out to Chime to authenticate your credentials. Should you have two-factor authentication (2FA) set up, it will require you to enter that as well. In instances where your bank does not support 2FA, Plaid provides its own 2FA mechanism. According to Plaid, the company adheres to internationally recognized security standards such as ISO and maintains compliance with SSAE18 SOC2.

Once authenticated, this connection remains active, allowing for the transfer of financial data that you permit. Typical data includes transaction histories, balances, and other relevant information. Sezzle, a platform for installment payments, utilizes Plaid for financial verification, enabling users to link their accounts and facilitating payments through Automated Clearing House (ACH) methods instead of traditional credit or debit cards.

As with most companies that transfer financial information, Plaid claims to prioritize the security of its users’ data. To ensure safe transmission, Plaid employs strong encryption protocols, including the Advanced Encryption Standard (AES 256) and Transport Layer Security (TLS). Understanding that your data is protected using these advanced security methods may offer additional peace of mind.

Besides following industry-leading security practices for data management, Plaid implements numerous protocols to safeguard your information, which are outlined on their Trust and Safety page. These measures include maintaining multifactor authentication (MFA) for added security, running a bug bounty program, committing to never sharing your data without explicit consent, and providing you with full control over the companies that can access your information and the type of data they can receive.

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Plaid has gained the trust of over 11,000 companies as a fintech solution, linking users to various third-party financial platforms, including Venmo, Acorns, and Betterment. When utilizing Plaid with such applications, the login process takes place directly with your bank. The third-party service does not see your actual credentials; instead, it receives confirmation of a successful login and the specific information you allow it to access.

Although it’s natural to be cautious about permitting an external service access to your sensitive financial account information, Plaid emphasizes the seriousness with which it undertakes security. It does not sell or rent user data and instead provides users with complete authority over their data-sharing practices.