Plaid acts as a middle man between Venmo and your bank when you try to perform a transaction, thereby giving Plaid access, allowing them to transfer that information to the Venmo app. Plaid builds these digital connections for Venmo to share specific customer data needed for a transaction.
Are you wondering what Plaid is, how it works with Venmo, and if it’s safe to use Venmo Plaid? Continue reading to find out all of that and more.
Plaid is a fintech company that facilitates the transfer of sensitive information during financial transactions with services like Venmo.
Plaid serves as an intermediary, holding your sensitive financial information and linking your credit card or bank accounts to Venmo and other financial technology apps. This is important because these apps often need access to that information, and Plaid provides a secure point of access to it.
But why is Plaid part of the equation when it comes to Venmo and is it safe to use? Read along to find out.
What Is Plaid?
Plaid is a financial service focused on helping people effortlessly integrate their financial accounts with the fintech services of their choice. It’s a platform on which numerous fin techs are built, allowing them access to customer data necessary for financial transactions.
Plaid powers various apps that use financial data to help you save money, pay off loans, and send and receive money. It’s important to note that Plaid isn’t a payment processor. It facilitates data movement but doesn’t move any money around itself. If it needs to, Plaid relies on third-party apps.
How Does Plaid Work?
The mode of operation of Plaid is pretty simple in theory. However, sometimes you need to pass your transaction history, bank balance, or account type to a fintech app.
A Plaid window usually opens when you try to perform a transaction with those apps and your bank. You have to log in to your bank profile on that window, thereby giving Plaid access, allowing them to transfer that information to the fintech app.
These personal finance apps need access to your bank accounts. Each bank has its legacy architecture and unsavory UX that’s difficult to connect with without the Plaid connection layer. It also provided a simple UI for users like you to log into.
Plaid gives app developers access to links and APIs that allow them to build their products, ignoring the specific software architecture of each bank. This is because Plaid has the integration and connection process figured out already, so before Plaid, developers had to work on each bank specifically, thus creating no room for errors.
Is Venmo Plaid Safe to Use?
Yes, Plaid is safe to use with Venmo as Plaid acts as an intermediary between Venmo and your bank to log in and share data securely.
Most financial companies that deal with people’s financial information take their customers’ data security seriously, and Plaid is one of those companies.
As a result, encryption protocols like Transport Layer Security (TLS) have transmitted financial data.
Several other practices are put in place as listed on the company’s website. For instance, it:
- Promises never to sell or rent your data to other companies and never share your data without your permission.
- Allows you to control which companies have access to your data and what’s shared with each company.
- Operates a bug bounty program enabling even more people to spot security loopholes.
- Uses multi-factor authentication to add an extra layer of security if your bank doesn’t offer it.
Why Is Plaid a Part of Transactions?
You might wonder why fintech apps like Venmo don’t connect directly to banks or financial institutions. So, why is there a need for a middleman?
Well, there are a lot of financial institutions, and each one of them has a different way of structuring and managing its data. So, for a fintech app that wants to connect to people’s accounts, they’ll need to build a digital connection specific and unique to each financial institution, which will take a lot of time, resources, and expertise.
Imagine doing that for over 11000 institutions, and it isn’t exactly feasible. This is where Plaid comes in. Plaid builds these digital connections for these apps and banks, allowing them to share specific customer data needed for a transaction. Also, there’s a lot of data moving around in this digital age, and financial data is among the most sensitive information.
So, whoever is the steward of that data during transactions has a huge responsibility to prevent data leaks. Plaid does the work of encryption and re-authentication of your data between your banking provider and apps like Venmo.
How Does the Company Make Money?
Considering the company’s services, this might be something on your mind, but Plaid earns money from many fees that customers pay to use their services. These are the ways it works:
- The core product is free, as the company operates under a freemium business structure.
- New user accounts that connect to Plaid API are charged a one-off fee.
- Every time a transaction is made, such as making a payment, a subscription fee is charged.
- Every time a user’s account balance is checked, companies pay a fee.
The company has also received funding from rounds of venture capital funding from different investors.
Plaid doesn’t just offer these relay and middleman services, but they are gradually expanding beyond banking and becoming a more robust financial platform. This is made possible due to the amount of data they have access to; these other services they offer include.
- Liabilities: using your credit card and loan history to give you an overview of your liabilities.
- Payroll: using your payday history for budgeting and loan payments.
- Investing: taking stock of your investment history and holdings helps you make better financial investments.
With an expansion like this, Plaid will be able to use your data and history to help you make a financial decision for a loan, investment, or another spending.
Plaid has helped streamline financial transactions between personal finance apps and financial institutions, and that’s the case for Venmo. It also strives to protect your data that might have been leaked on faulty operating systems.
Hopefully, this article has helped you understand the scope of Plaid’s work and the role it plays in your day-to-day Venmo transactions.