Plaid, the fintech company that is in the process of being acquired by Visa for $5.3 billion, is launching Plaid Exchange this week. Plaid is mostly known for its range of APIs that let developers access banking information.
This time, with Plaid Exchange, the company wants to help financial institutions directly so they can build and maintain an API that other developers can use. An API is an interface that lets two services interact with each other.
If you’ve used Venmo, Betterment, Square’s Cash App or Robinhood, chances are you’ve interacted with Plaid. Plaid has built a universal API that connects with thousands of financial institutions. When a service like Cash App asks you to connect to your bank account to get your banking information and cash out your balance, Square uses Plaid behind the scene.
And the ability to connect to thousands of banks with the same API is valuable on its own. Banks are built on legacy IT systems, which means that it isn’t always straightforward to communicate with some banks.
Plaid sometimes has to rely on screen scraping, which means that it connects to your banking website through a web browser that runs on its server and then saves the information. Those integrations can break if the website is updated, and they aren’t as effective as using an API.
With Plaid Exchange, Plaid can help banks when it comes to implementing an API. It should be more secure and reduce load on the servers.
Banks that choose to work with Plaid to build their API would then have a modern token-based system for their customers. For instance, just like on a social network, customers would be able to see if they have connected their bank account with a third-party service and disable those connections.
Financial institutions could also leverage Plaid Exchange to build new services that connect directly with your main bank account through the API. Companies would be able to see if connections are working fine, which would make it much easier to identify issues with the infrastructure.
In some countries, such as the U.K., open banking is slowly becoming mandatory. Banks will have to provide an API sooner or later to increase competition between financial services. And Plaid wants to take advantage of those changes in the banking industry.