Plaid Exchange’s upgrade puts personal financial management in new light

• Plaid unveiled a real-time account update feature for its Plaid Exchange platform.
• And this iteration makes it more efficient for banks to output and fintechs to access that data. 

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Plaid unveiled a real-time account update feature for its Plaid Exchange platform, which the company launched in May. The iteration reduces to seconds the time it takes financial data to reach a fintech from a financial institution (FI).

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Exchange helps banks build their own APIs that tie into Plaid’s established network of fintechs, such as Venmo, Robinhood, Coinbase, and Square’s Cash App. This iteration of Plaid Exchange makes it more efficient for banks to output and fintechs to access that data. 

The Exchange model is as much about giving FIs control as helping fintechs utilize customer-permissioned data. Banks and other financial companies have been wary of sharing customer-permissioned data with fintechs. Exchange is attractive to FIs because, by building APIs in-house, they can better control the flow of customers’ financial data to fintechs.

The original Plaid API and its competitors depend on screen scraping, which FIs consider a threat to data security and customer privacy. By offering their own data-sharing APIs, FIs avoid the risks of fintech screen scraping—taking data the customer might not intend to give away—and better protect financial data and consumer privacy. Fintechs have argued that API-based gated access to financial data threatens their business models, but by bringing FIs and fintechs together on one platform, there is less operational risk to either.

Fintechs’ real-time access to transaction activity could change the dynamic for personal financial management (PFM) providers. Both FI and fintech PFM tools have primarily aggregated snapshots of financial data, but FIs have had the capacity to layer on real-time analysis of transactions and cash flows that third parties have not been able to mimic.

FIs’ immediate access to their own data could no longer be a competitive advantage: Quick data transfer between FIs and fintechs—essentially, real-time fintech access to transactional activity, like payments—will allow fintechs to build cash flow management and spending analysis tools optimized for use on a mobile device. That development could insert them into day-to-day banking activities, making them a meaningful threat to the primary FI relationship.

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