How to Empower Your Product with Plaid's Data Network

Plaid’s history untangled

One meeting changed it all. When Zach Perret and William Hockey met in Atlanta, they came to know each other as consultants at Bain & Co. But they had bigger plans in mind, frustrated by the lack of transparency in the bills they had to pay. 

To solve the challenge for people like themselves, the duo conceptualized an app democratizing financial planning. But soon, they got bogged down in custom integration development for every financial organization they added to the list. Puzzling it all together into a financial ecosystem for customers took ages.

So, Perret and Hockey decided to build an API to simplify connecting customers' bank accounts to financial apps. Despite the enthusiasm of the co-founders, investors didn't buy the idea. So, in 2013, the two landed on TechCrunch Disrupt with Michael Kelly, winning it with their Rambler app that sorted out users' debit and credit card activity into a map. 

The technology at the core of Rambler sparked the interest of players such as Venmo. Their partnership resulted in an improved connection between Venmo's app and the customer bank accounts. For Plaid, that meant attention and further collaboration with industry heavyweights like Robinhood and Coinbase. That was the start of Plaid as we know it. Over the last ten years, Plaid has amplified its toolbox, offering a bunch of APIs tailor-made for different tasks in the world of account linking and financial data fetching.

Now, let's take a closer look at Plaid's game-changing products.

Financial services build on excellence

Selecting data sources

Plaid has several products, all removing the headache of embedded finance for fintechs. By providing a connection layer, Plaid enables essential interfacing capabilities for developers to bridge banks with the end customers of fintechs.

Plaid Link: The core

Plaid's flagship product is Link. It's an API that links a bank or other financial institution and an app requesting its banking data. Taking care of all the tricky parts, Link lets companies create fantastic apps on top of Plaid's API, leaving developers free to focus on the app's functionality rather than wrestling with connections.

Link acts as a client-side component that helps your users link their accounts with ease. It takes care of checking their credentials, handling multi-factor authentication, and smoothing out any friction for all the financial institutions Plaid works with.

You can count on Link across various platforms — it's got your back on web browsers, iOS, Android, React Native, and mobile webviews. Even Flutter has a community-supported Link wrapper. 

Being a go-to method for connecting accounts in both Development and Production, Link is so essential you can choose to skip it for testing in the Sandbox test playground. 

Now, I’ll give you a quick guide through Plaid’s other products. The suite boasts ten APIs for every financial need.

Assets

With the Assets API, lenders can quickly check if borrowers have enough assets for loan approval. Borrowers can grant access to Asset Reports and revoke it when needed, ensuring security and privacy, while lenders can streamline their loan process and serve more borrowers.

Auth

The Auth API quickly confirms a user's bank account, enabling seamless payments. When users link their accounts via Plaid Link, this API fetches account details, unlocking ACH payments for easy money transfers between their bank and the app.

Balance

After Auth does its job, it passes the baton to Balance. After receiving a confirmation that a bank account for given credentials exists, the Balance API goes a step further, offering real-time insights into the account's balance. It inspects available funds, helping companies consider overdraft potential and minimize overdraft risks.

Identity

This API confirms a user's identity by fetching personal details like name, email, phone numbers, and addresses after user approval. This enhances the user experience and bolsters fraud prevention, making financial apps more secure and reliable.

Identity Verification

Similar in purpose to Identity, Identity Verification takes verification a step further. It's a three-method tool for confirming that the ownership information on the customer’s linked bank or credit card account matches this verified identity. On the contrary, Identity supports the company’s KYC to make sure your app's user is the person they claim to be.

• First, the tool confirms personal details (Authoritative Data Source).
• Next, it verifies IDs, being able to check eye-popping 16K types of them (Documentary Verification).
• Finally, it’s selfie time; Identity Verification compares the fresh photo against the individual’s ID shot (Selfie Verification).

Income

This API is for the US-based use only. It confirms a user's income and employment using the lucky three: Payroll Income (gathers payroll data after the customer’s consent), Document Income (squeezes info from the documents users upload manually), and Bank Income (uses the bank account connection to pipe in the necessary data). Payroll Income gathers payroll data after user consent, including deductions, earnings, employer details, pay period frequency, and W2 information.

Investments

Pulling a user's investment data, Investments API is perfect for personal finance or wealth management apps. It provides a bounty of information, including cost basis, quantity, purchase price, and total book value of their holdings. What makes it even more valuable is its wide range of connections to banks, crypto organizations, credit unions, and asset managers, covering a variety of account types.

Transactions

The Transactions API goes beyond investments, covering all of a user's transactions for the past 24 months, complete with geolocation, merchant, and purchase category details. It ensures up-to-date transaction records and sends notifications via webhooks, making it ideal for personal finance apps that offer real-time insights into users’ spending habits.

Liabilities

This one fetches a user's liability data, including next payments, interest rates, initial loan amounts, and loan durations, offering extensive coverage for major student loan services and thousands of financial institutions' credit card programs.

Monitor

Developed in 2022, Plaid Monitor was a solution to the security concerns rising around the company. Determined to nullify the potential for fraud, Plaid built this API to work in cooperation with governments. Monitor zooms in on user activity, looking for potential money laundering cases and politically exposed persons (PEP).

Other offerings

While the APIs mentioned cover most of Plaid's offerings, they continue to expand their arsenal with products like Plaid Portal, Plaid Exchange, and Wallet Onboard.

• Plaid Portal. Plaid Portal puts users in control of their financial data by centralizing connections to fintech apps and allowing them to manage access. It enhances privacy and empowers users to unlink bank accounts or delete information from Plaid's database.
  
  
• Plaid Exchange. This solution bridges the gap between legacy banking systems and modern APIs. It empowers financial institutions to implement their own APIs, fostering secure and efficient connections while leveling the playing field for large and small banks in the digital transformation journey.
  
  
• Wallet Onboard. Plaid’s recent venture into the crypto space extends the company’s account linking technology to web3, enabling web3 developers to integrate with over 300 wallets, including MetaMask and Coinbase Wallet, for Ethereum-based apps. It brings a seamless experience, just like linking a bank account.

Use Cases

Personal finances: Enhancing financial health

Juggling finances across multiple institutions while keeping a picture clear can be a hassle for any of us. Plaid simplifies it with PSD2 integrations, consolidating over five years of financial data in its Transactions product. Here’s how it works.

• Your company integrates Plaid’s front-end module into your app or digital service.
• Users get a prompt to link their bank accounts in a few clicks.
• Once the module launches, you can tailor it to your brand or customer preferences.
• When the customers are through with connecting their accounts, Plaid sends you clean data fitting your needs.
• Plaid's categorization engine tidies up transactions and transforms them into a comprehensive structure that is easy to analyze. This clear transaction history is a perfect tool for trimming expenses and steering toward savings and investment milestones, all thanks to years of well-organized transaction history.

To categorize all the data, Plaid developed a taxonomy that included 600 categories by 2022. Large enough to complicate, not simplify the view, it was binned into 16 primary and 104 other, more detailed categories to match user needs. Now, it's tailored to provide concise and clear insights based on higher-quality category predictions.

Business finances: Easy management for everyone

Providing employees with a seamless payroll experience can be quite a puzzle. The same is true for other activities, from budgeting to bookkeeping. Plaid simplifies it all by tapping Open Banking integrations for account aggregation.

Here’s how Plaid orchestrates effortless business funds management using Transactions, Identity, and Auth products:

• Transactions backs you with effortless bookkeeping by maintaining a wealth of clean, categorized data for both personal and business accounts, spanning as long as over five years.
• Identity checks customer identities based on bank records, adding an extra layer of security.
• Auth instantly retrieves your user's IBAN and BIC, making setting up direct debits and payouts a breeze.

Plaid's solutions helped numerous companies innovate. The comic below gives a touch of fun to the story of Drop tapping Plaid to power a personalized customer reward system.

The integration flow for this case is pretty much the same as in the previous one. Below, I explain what steps you should follow to integrate Plaid, best practices and the possible challenges, and how to make the most of Plaid’s products.

How to integrate Plaid: INSART explains

In this deepdive into a standard Plaid integration, you’ll get an understanding of the components required and how they interact with your app and Plaid. Also, I’ll explain the critical integration points and provide the necessary how-tos and additional resources.

Getting started

First things first, you’ll need to log into your Plaid Dashboard. By the way, check the website: there is tons of helpful information for particular cases (like setting up Plaid with or without Docker installed).

In the Dashboard, you’ll receive two API keys and up to three Plaid environments: Production, Development, and Sandbox. Let’s start with the Sandbox environment, your playground for training. 

Take a look at the diagram below. It splits the integration process into three swimlanes: your front end, your back end, and Plaid. This is the canvas where each function or process originates and communicates on. Let’s untangle it.

Plaid's swimlane diagram visualizing the algorithm behind integrating its API

First steps with the API

You’ll need the keys you received to initiate the calls from your application server. Almost every call will include your client ID (identifier of your team) and secret (the second private key for your environment). Plaid SDK will include this data for every call you make.

On the client side, your users will pick and connect to a financial institution. Alternatively, they can choose to fix the existing connection. That’s where you have to create a Link token to initialize Plaid Link. You can create it before the connection, but note that tokens are valid for up to 30 minutes only. 

Initializing the link

You can initialize the link two ways, one for adding a new institution and the other, Link in update mode, to fix issues on the previously linked institutions. 

• In the first case, the Link will need the end user to search and find the institution.
• In the second, Plaid will navigate the end user to the relevant option.

Dealing with callbacks

As the Plaid link validates and helps users connect to their institution of choice, it provides a series of callback information. These callbacks come in three types: 

• onExit callbacks fire if the end user exits the link without successfully connecting to the institution. It’s helpful to review this type of callback to understand why the user exited the Link and think of the message for them.
• onSuccess callback signals when the end user completes the Link flow without problems and yields a public token. To complete the item creation process, you will need to exchange the public token for an item’s access token. Store the latter, as that is the primary identifier used to obtain data for that item from the Plaid API.
• onEvent callbacks indicate what steps and how the end user took during their Link journey. These are essential in understanding and measuring end-user conversion metrics in Link.

Log and store callbacks of each type for analytics and troubleshooting purposes. 

Getting the data

Now it all depends on the Plaid product you are using. 

• For products such as Instant Auth (the default Auth flow), Identity, and Balance, you can hit the Plaid product API endpoint right away to get data from the created item. 
• For others, including Transactions and Investments, you’ll have to wait a bit till the data is available. Plaid will notify you as soon as it happens using webhooks. It will do the same if new data arrives.

Mind that in the second case, hitting the endpoint before the notification arrives will result in an error message. 

Sometimes, Plaid loses connectivity to an item. If that happens, you’ll receive an item error webhook telling the end user needs to fix the problem by using Link in update mode. The Plaid will get back to pulling data for the recurring products (Transactions, Investments, etc.) once the connectivity is restored. 

What this simple integration can help you achieve

As I mentioned, Plaid’s products provide colossal opportunities for both end users and the companies utilizing the offerings. One of the examples of a powerful boost Plaid provides is Current’s case.

In 2022, Plaid's partnership with Current's new platform API empowered 4 million Current members to seamlessly access over 6,000 fintech apps, ranging from digital payments to financial planning and investment tools. This integration prioritized security and convenience by utilizing phone number and device authentication, eliminating the need for traditional banking credentials. So the users could enjoy fuller financial lives while maintaining control and security. This collaboration offered a straightforward, secure gateway to digital financial services, especially rewarding to those new to the Fintech space.

Wrapping it up

Plaid’s products streamline processes, improve security, and empower users by simplifying personal and business finances. Its integration process is straightforward, allowing you to access years of clean, categorized financial data for analysis. 

While reflecting its commitment to making finance accessible and secure, the success of Plaid’s journey dares us to redefine the Fintech world as we know it. You can start by building on the excellence of this industry rockstar. To help evolve your unique offering, check other articles by INSART’s experts. Or, you can reserve half an hour to brainstorm with our team on 101 ideas to make your product perfect.