Plaid Explained: What It Is, How It Works, and Why Apps Use It
TABLE OF CONTENTS
You’re setting up a new budgeting app or trying to link your bank account to Venmo when suddenly a screen pops up asking for your banking credentials, but it’s not from your bank or the app you’re using.
Instead, you see “Plaid” at the top, and you’re wondering: what is Plaid, and why is it handling my sensitive financial information?
If you’ve used any financial apps in the past few years, you’ve probably encountered Plaid without even realizing it.
This fintech company has quietly become the invisible infrastructure powering connections between your bank accounts and hundreds of popular apps like Venmo, Robinhood, and Chime.
But what exactly is Plaid, and how does it work when you enter your bank login details?
More importantly, is it safe to trust this middleman with access to your financial accounts? We’ll walk through how Plaid operates, what data gets shared, and how to manage these connections safely.
Quick Summary
- Plaid connects bank accounts to financial apps—if you’ve used Venmo, Robinhood, or Chime, you’ve likely encountered it
- The service costs nothing for users and requires no account creation; it operates behind the scenes during app connections
- Apps receive only specific data they request—account balances, transaction history, and basic personal details for verification
- All connections can be viewed and removed through their Plaid portal
- Online security risks mainly come from the individual apps rather than Plaid’s own systems and infrastructure.
What Is Plaid?
Plaid started in 2013 with a simple mission: fix the messy world of connecting bank accounts to apps. Back then, if you wanted to link your checking account to a budgeting app, you’d often have to download bank statements, manually enter account numbers, or deal with clunky integrations that broke constantly.
The company stepped in as a middleman—a fintech service that acts as a secure bridge between your bank and the apps you want to use.
Banks have strict, often outdated systems, while apps need quick access to verify accounts and pull transaction data. Plaid built the infrastructure to make these connections seamless.
Today, Plaid has partnerships with over 11,000 financial institutions. When you link your bank account to any financial app, you’re likely using Plaid’s infrastructure, even though you never create a Plaid account or interact with the company directly. It operates entirely in the background.
As of 2025, at least half of all Americans will have used Plaid’s services in some way, showing just how essential this invisible infrastructure has become to modern finance.
How Does Plaid Work?
Plaid works entirely in the background; you don’t actually interact with it directly. Here’s what’s really happening behind the scenes when you link your bank account to an app:
- You click “Connect Bank Account” – The app redirects you to Plaid’s secure interface (though it often looks like it’s still part of the app you’re using)
- You enter your bank credentials – This is the only step you’re actively involved in. Plaid’s system encrypts this information using protocols and uses it to log into your bank on your behalf
- Plaid verifies and pulls data – Without any input from you, it confirms your identity, checks account balances, and retrieves whatever transaction data the app requested
- Plaid creates secure tokens – Your actual login credentials are automatically discarded and replaced with encrypted tokens for future access
- Data flows to the app – The app receives only the specific financial information it needs, formatted in a standard way
The entire process takes a few seconds, and you never have to think about Plaid again. You don’t create a Plaid account, download any software, or manage any settings. It’s completely invisible to you as the user.
You also don’t pay any fees for this service. The apps pay Plaid based on the data they access, so the cost is built into the app’s business model rather than passed to you.
If you have multiple accounts (checking, savings, credit cards), Plaid can connect them all in one session, letting you choose which ones to link—but again, this all happens automatically once you’ve entered your credentials.
What Data Does Plaid Access?
When you connect your bank account through Plaid, the service can access two main categories of information. However, apps don’t automatically get everything; they only request the specific data that’s required for their particular function.
Is Plaid Safe?
Given that Plaid handles your most sensitive financial information, we get why security is obviously a major concern. But, as you’d expect, the company has built multiple layers of protection. Though, like any financial service, there are still risks you should be aware of.
Encryption and Tokenization
Plaid encrypts all data both when it’s transmitted using Transport Layer Security and when it’s stored on its servers. More importantly, it uses tokenization—after your initial login, your actual bank credentials are deleted and replaced with encrypted tokens.
This means even if someone gained access to Plaid’s systems, they wouldn’t have your actual username and password.
Multi-Factor Authentication
When you connect accounts, Plaid supports the same security measures your bank uses, including text message codes, authentication apps, and security questions. If your bank requires two-factor authentication, Plaid will prompt you for it during the connection process.
Industry Certifications
Plaid maintains several security standards that financial institutions are required to follow:
- SOC 2 Type II compliance (audited security controls)
- PCI DSS compliance (Payment Card Industry Standards)
- ISO 27001 certification (information security management)
No Stored Login Credentials
This is crucial: Plaid does not store your bank username and password after the initial connection. They use those credentials once to verify your identity and create secure tokens, then permanently delete the login information.
Future data access happens through these encrypted tokens, not your actual credentials.
Managing Your Connections
You can see and control all your Plaid connections through your Plaid Portal account at my.plaid.com. This shows every app that’s connected to your bank accounts through Plaid and lets you revoke access instantly if you stop using an app or have security concerns.
The main risk isn’t necessarily with Plaid itself, but with the apps that use it. If a budgeting app gets hacked, your financial data could still be exposed even though Plaid’s systems remain secure.
What Is Plaid Used For?
Plaid powers dozens of different financial functions, but most fall into a few core categories that solve real problems for both users and apps.
Income Verification for Credit Applications
Instead of uploading pay stubs or tax returns, lenders can instantly verify your income by looking at your direct deposit history. This speeds up loan approvals from weeks to minutes and gives lenders a more accurate picture of your actual earnings, including freelance work or multiple income sources that might not show up on traditional documents.
Money Transfers Between Banks and Apps
When you move money from your checking account to Robinhood or transfer funds from Venmo back to your bank, Plaid handles the connection. This eliminates the need to manually enter routing numbers or wait for small verification deposits that traditional ACH transfers require.
Spending Analysis in Budgeting Tools
Apps like Mint or YNAB use Plaid to automatically categorize your transactions, track spending patterns, and create budgets based on your actual financial behavior. Without Plaid, you’d need to manually upload bank statements or enter every transaction by hand.
Real-Time Balance Checks
Before processing a payment or transfer, apps can instantly check if you have sufficient funds rather than risking overdraft fees. This protects both you and the app from failed transactions.
Win-Win for Everyone
For users, this means faster approvals, automatic data sync, and fewer manual steps. You’re not manually entering account numbers, uploading documents, or waiting days for bank verification.
For apps, Plaid reduces customer service headaches from failed transfers, eliminates the cost of building individual bank integrations, and provides cleaner, more standardized financial data to work with.
The result is financial apps that actually work reliably instead of constantly breaking when banks change their systems or requiring users to jump through frustrating verification hoops every few months.
Where Is Plaid Used?
Plaid powers hundreds of financial apps across different categories. Here’s where you’re most likely to encounter it:
You can browse popular apps powered by Plaid at their Discover Apps page.
Managing & Disconnecting Plaid Access
Most people don’t realize how many apps they’ve connected through Plaid until they actually check. Fortunately, Plaid gives you full control over these connections and makes it easy to see exactly what’s linked to your accounts.
Checking Your Connected Apps
The easiest way to see all your Plaid connections is through the Plaid Portal. This dashboard shows every app that’s currently connected to your bank accounts through Plaid, along with details about what data each app can access and when you first connected it.
You’ll see information like:
- Which specific bank accounts each app can access
- What type of data they’re pulling (balances, transactions, account details)
- When you first linked the connection
- How recently each app accessed your data
Disconnecting Apps You No Longer Use
Removing connections is straightforward through the Plaid Portal. You can disconnect individual apps or revoke access to specific bank accounts. When you disconnect an app, it immediately loses access to your financial data, though the app might still have historical information it previously downloaded.
Deleting Your Data from Plaid
If you want to go further than disconnecting apps, Plaid also offers a data deletion option. Through its data subject request form, you can request that Plaid delete all the personal data it has about you.
This is useful if you want to completely remove your information from their systems, not just stop future data sharing.
When to Remove Connections
You should consider disconnecting apps when:
- You’ve stopped using a budgeting or financial app, but forgot to remove the connection
- You’re trying a new service and want to disconnect the old one
- An app gets acquired by a company you’re not comfortable sharing data with
- You notice suspicious activity or get breach notifications from a connected service
- You’re doing an annual “digital cleanup” of your financial connections
What Happens After Disconnecting?
Once you revoke access, the app can no longer pull new data from your accounts. However, most apps retain the historical data they’ve already collected according to their own privacy policies. If you want that data deleted too, you’ll need to contact the app directly or delete your account with them entirely.
The Plaid Portal also lets you download a record of all your connections, which can be useful for keeping track of your digital financial footprint.
Alternatives to Plaid
As a consumer, you don’t really get to choose whether an app uses Plaid or one of its competitors—the app developers make that decision.
Still, it’s worth knowing what else is out there since different services might handle your data slightly differently.
Main Plaid Competitors
MX – Often used by banks and credit unions for their own digital banking platforms. MX focuses heavily on data cleansing and categorization, so apps using MX might provide more accurate spending insights and budgeting features.
Yodlee (now Envestnet | Yodlee) – One of the oldest players in this space, commonly used by larger financial institutions and established wealth management platforms. Banks like Wells Fargo and investment firms often rely on Yodlee for account aggregation services.
Finicity (owned by Mastercard) – Popular with lending and credit applications because of its focus on income verification and cash flow analysis. You might encounter Finicity when applying for mortgages or business loans.
Why Apps Choose Alternatives
Apps typically pick alternatives to Plaid for reasons like:
- Cost considerations (some competitors offer different pricing models)
- Better coverage for international banks
- Features like enhanced fraud detection or lending-focused data
- Existing partnerships or integrations with their parent companies
What Does This Mean for You?
The experience is largely the same regardless of which service powers the connection. You’ll still enter your bank credentials, grant permission for data sharing, and maintain the ability to disconnect.
The main differences are usually behind the scenes—things like how quickly transactions sync or how accurately spending gets categorized.
The most important thing for you is that all these services follow similar security standards and give you control over your data connections, regardless of which one an app chooses to use.
The Bottom Line
Plaid has quietly become essential infrastructure for modern finance, connecting your bank accounts to many of the apps you probably use daily.
Services like Plaid make financial apps actually work, but do occasionally review what’s connected to your accounts.
Combined with Payment Savvy’s all-in-one business payment solution, Plaid can prove an invaluable asset to your company’s payment processing, strengthening security and user experience. Get in touch with us today and see how our solutions can complement Plaid in more ways than one.
FAQ
What banks use Plaid?
Plaid works with over 11,000 financial institutions, including all major US banks like Chase, Bank of America, Wells Fargo, and Citi. It also supports most credit unions and online banks, so your bank almost certainly works with Plaid.
Do I need a Plaid account to use it?
No, you never create a Plaid account. When you connect your bank to an app, Plaid works away in the background. You only interact with the app you’re using—Plaid handles the secure data transfer. No registration is required.
Can I unlink my bank from Plaid?
Yes, you can disconnect any app from your bank accounts through the Plaid Portal.
Does Plaid charge me?
No, Plaid is completely free for consumers. The cost is built into the app’s business model and isn’t passed on to you.
Why do apps use Plaid instead of just asking for my info?
Manual data entry is slow, error-prone, and requires constant updates. Plaid provides real-time, accurate financial data while maintaining bank-level security. Essentially, it’s faster and more reliable.
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