Earlier this year, a collaboration was announced between Plaid and U.S. Bank, which was intended to leverage Plaid’s API-based financial infrastructure in the development of a new cross-platform integration that would provide increased transparency and simplicity for the companies’ customers that interact with third-party financial applications. This integration, which is accessible via U.S. Bank My Controls and the Plaid Portal (currently in beta), highlights a shared commitment to open banking and moves toward a credential-less application ecosystem for secure access to third-party banking services.
U.S. Bank is the fifth-largest financial institution in the United States and has been around for well over a hundred years. With this history comes a wealth of financial services experience and a massive membership base that spans across the country. Additionally, prior to collaborating with Plaid, U.S. Bank had already begun building out an API platform and developer portal that allowed for integration with the company's financial services. While this integration infrastructure existed, it was largely hidden from the eyes of U.S. Bank’s customers.
Plaid, on the other hand, was founded in 2013 with the intention of leveraging APIs in order to provide banking customers with financial data transparency and streamlined access to third-party integrations. This would prove to be a tall order, with many financial institutions at the time still operating in a world dominated by paper processes.
In its infancy, Plaid would have to leverage a combination of techniques, including screen scraping data (we will talk more about this later), to make its intended workflows possible. In time, banks began to realize the momentum behind the API economy and Plaid announced in late 2020 that it would be able to dedicate 75% of its traffic to APIs by the end of 2021. Part of the process of fulfilling this promise is to further integrate with large financial institutions, such as U.S. Bank, that not only process a large number of transactions but also share a commitment to APIs as an integral part of realizing the full potential of open banking.
To help readers better understand how APIs serve as the basis for outcome-driven partnership strategies (versus the business model of more open developer programs), ProgrammableWeb spoke with representatives from Plaid to learn more about this collaboration, how it fulfilled the two companies mutual goals for open banking, and what it means to put the customer first when building out highly technical integrations that are meant to go mostly sight unseen. In the scheme of API ecosystem-driven business models that ProgrammableWeb has exhaustively documented in our Guide to Modern API Business Models, Plaid’s business model falls under the ecosystem subcategory of a hybrid business model.
In setting the stage, Plaid’s Global Open Finance Lead Dan Kahn told us that:
“Plaid came on the scene in 2013, and "fintech" was relatively unheard of - a lot of financial services were paper processes. So, many banks were looking at the huge task of digitizing their products and services, but letting their customers seamlessly connect their accounts to apps in a digital way was not at the top of the list for many. A few years ago, some banks started building out more mature APIs (early adopters who come to mind are JPMorgan Chase and Wells Fargo). But again, a lot of it was a resourcing consideration, and consumer demand for digital financial services was nowhere near where it is today. As consumer reliance on digital financial tools has surged, banks are prioritizing building out their APIs to support connections without Plaid having to use screen scraping.”
Kahn continued explaining Plaid’s unique value proposition by stating that:
“One of the reasons Plaid exists is to reduce complexity. There are over 5,000 FDIC-insured banks in the U.S. There are over 4,000 Credit Unions. There are hundreds, if not thousands of other types of institutions like brokerages and neobanks. And for the average consumer who just wants to link their accounts with Venmo, send money internationally with TransferWise, or track their finances using an app like YNAB (You Need A Budget). They don't really care about the backend technology.”
This statement certainly holds true for U.S. Bank’s customers. However, without an elegant solution for U.S. Bank customers to engage with third-party integrations such as YNAB, much of the bank’s integration infrastructure has been underutilized. What U.S Bank found in Plaid was a partner with a similar mindset and a unique value proposition geared toward open banking enablement.
“At Plaid, we care a lot about transparency, user control, and about security. And so the key thing with U.S. Bank was, we were a hundred percent aligned on those principles. And so by starting from those principles, we didn't say, what does U.S. Bank have off the shelf? What does Plaid have off the shelf?”
For this collaboration to be a success Kahn noted that the two companies had to think beyond existing infrastructure and design an API that was new to both companies and would be dedicated to solving specific customer problems. The United States lacks a universal standard for these sorts of connections and although both Plaid and U.S. Bank are members of the Financial Data Exchange (FDX), a nonprofit dedicated to unifying the industry around common standards, this partnership predates the formal establishment of an agreed-upon solution.
“So we said, okay, let's put our heads together. What would be a really good user experience so that customers who are using apps already, as we migrate to this new API, we don't have to break their connections, but they can be informed that there has been this change technically on the backend.
This all connects back to Kahn’s original statement; customers don’t want to be inundated with mundane details about technical changes, they just want to know how they can get things done. Rather than droning on about the technical bits, the two companies were able to email bank customers notifying them of the new possibilities. Kahn outlined the benefits of this federated ecosystem:
“So if you're a consumer, you have multiple places that you can go see where your data is being shared, track it. And then if you want to revoke consent, you can do it from either property and it'll update in real-time.”
A separate Plaid representative outlined the value in a specific use case:
“For example, if a business had connected to an Expensify account and their company no longer uses Expensify to track expenses, then obviously they don't need to connect their account to Expensify anymore. So they can just disconnect it in the Plaid Portal. And then similarly, US Bank has a portal that enables their customers to go in and see where their apps are connected through Plaid, and they can manage those connections and everything will be synced up and reflected in those respective places.”
Additionally, beyond benefiting the end-user by allowing for simplified management of financial connections, Kahn notes that the transition to API connections has security benefits.
“If a bank (like US Bank) has an API that we can integrate with to facilitate a connection between the consumer’s bank account and an app they want to use, then it removes the need to screen scrape. Screen scraping requires the facilitator of the connection between consumer bank account and app to securely hold credentials. The more banks that build APIs, the faster we can move to a credential-less system.”
This is an important transition to note. If you think back to our earlier conversation about Plaid’s beginnings, you will remember that when the company was just getting started it often had to rely on screen scraping in order to access data from financial institutions that were just starting to digitize their businesses. Screen scraping at the time served as a necessary evil, one that is increasingly being relegated to the past. When Plaid discusses a move toward a more secure credential-less system, this movement away from screen scraping and toward APIs as the sole access point for financial data is at the crux of this movement.
Plaid has made some progress in helping facilitate this transition in the financial sector, noting that the company is now working, in one shape or another, with an increasingly large number of financial institutions:
“For this type of partnership, more than half of the top 10 banks, we're now actively working with. And then, in terms of financial institutions that are committed to APIs, there's actually more than 400.”
This speaks to a massive shift in the landscape, where Plaid once found that few banks were on the road to utilizing APIs for data sharing, now the company is working with hundreds of institutions on dedicated financial APIs. This also highlights Plaid’s two-pronged business strategy. First, the company works directly with some larger financial institutions on bespoke API offerings that meet their needs on a more granular level. This is shown clearly in the partnership with U.S. Bank. Then for partners that may not be ready for this level of commitment, the company offers Plaid Exchange, which provides developers with access to off-the-shelf tools for building more simple integrations.
Kahn explained this offering by stating that:
“And then our Plaid Exchange API is an opt-in API program. So if you're a newer, say, neobank, you don't have that many customers... Plaid might not have an integration that we've built out to you. The market may not be demanding it yet, but we actually see some of these fintech's saying, this is actually part of our minimum viable feature set when we launch. Because if you can't use the account to connect to Venmo, to connect to Square, to connect to YNAB, it's not a fully functioning account.”
In the time that has passed since our initial interviews with Plaid, the company has announced a new partnership with Capital One that further solidifies the company’s credential-less approach to finance integration. Additionally, while Plaid Portal is still in beta (the expected full release is later this year), developers can check out the product at my.plaid.com.