Plaid is launching a new service to help banks, especially small ones, quickly develop application programming interfaces for sharing their account data with third parties.
The company, which announced the venture Tuesday, already works with 3,000 other fintechs to help them access customers' bank account data. But Plaid Exchange will enable banks to be in the driver's seat of data-sharing efforts.
Sharing this data with fintechs has long been a challenge for many banks. Banks historically have not liked the common practice of screen scraping, where a fintech or a data aggregator uses a customers’ user name and password to log in and grab bank account information for an app. Bankers see the process as fraught with security risks and bottlenecks.
The largest U.S. banks, like JPMorgan Chase and Wells Fargo, have built their own APIs, or direct access paths for data aggregators like Plaid and fintechs like Intuit. But small banks often lack the resources to develop their own APIs.
“Plaid has a goal many banks share of moving away from screen scraping to API connectivity,” said John Pitts, head of policy for Plaid. “We talked to more than a hundred banks in developing this. Some of them have real barriers to moving away from screen scraping themselves, including cost and technical expertise.”
Some banks have said developing APIs costs $40 million over four years, he said.
“At Plaid, our bread and butter is building these APIs,” Pitts said. “Our objective is to build something that would work for any bank, and remove that technical expertise barrier and cost barrier so that the smallest community bank and credit union can be on a level playing field with the biggest Wall Street banks in terms of developing out those digital tools for their customers.”
According to Pitts, Plaid gets calls from 10 to 20 banks a week asking to do API integrations with the company.
“Our focus up until now has had to be, sort of by necessity, on the largest institutions where we have the most traffic because there wasn't a standardized solution to implement with lots of banks at scale,” Pitts said. “Everything had to be bespoke and was really time-consuming. The real shift here is this is standardized, almost open-finance-in-a-box. It's built around an API core and we can implement it at scale with any bank that wants it.”
Plaid Exchange offers API access to its platforms, dashboards for banks to understand how their customers’ data is being accessed, and dashboards for consumers to see where their data is being shared.
Plaid Exchange is for any financial institution that wants to launch an API data access strategy quickly, from the integration to supporting infrastructure, tools and services, the company said. It includes a gateway API, so theoretically a financial institution can use Plaid as an integration layer for data aggregators or other fintechs.
“We took our unique position in the industry and our experience and we stepped back and said, how do you accelerate an API ecosystem and open finance in North America beyond the technical integration?” said Niko Karvounis, head of product, institutions, at Plaid. “What sorts of features, visibility, tools, services, products do you need to actually build and populate around an API technical integration?”
