THE BASIS POINT

Did you know a $2.7 billion data company called Plaid secretly powers your mortgage?

We need to revisit a story that slipped past during the holiday rush. It’s about a fintech company called Plaid that powers everything you do with your financial life, but it’s all behind the scenes, so let’s take a look at what they do and whether your data is safe.

Plaid raised a $250 million Series C round of venture capital this month, valuing them at $2.65 billion. They were founded in 2012 to be the plumbing for how countless consumer finance companies like Venmo, Robinhood, Stripe, Acorns, and Marcus (Goldman Sachs) connect to banks. Use Betterment to invest your money? Coinbase to trade crypto? Moneylion to manage your budget? Plaid connects them all to your bank, and they do this for tens of millions of you.

Plaid is equally ubiquitous in the mortgage industry. When you apply for a mortgage and get asked to connect your bank accounts to verify your income, assets, and transactions, Plaid is increasingly powering this for lenders. There are other strong players like Yodlee, Finicity, and FormFree, but Plaid is the golden child right now, and their new war chest allows them to build out more of these lender features.

Because of bank privacy, this stuff if harder than it looks, and Plaid’s massive capital raise may help them pull ahead of competitors in giving you an easier — and secure — experience with mortgages. And even if you don’t know of them, you data is passing through their pipes, so here are a few notes on why it matters to you:

1. Will Plaid sell your data? In short, No. You’re not Plaid’s customer so your data just passes through their pipes to get to the lender you choose who then owns your data per your consent. That lender is who pays Plaid for a toolset that makes the lender’s process easier for you.

Lenders also use other tech companies that pay Plaid. For example, many lenders use a tech company called Blend to power your loan application process. Blend uses Plaid to run part of the mortgage app requiring bank account connections (as noted above).

But even in the example of you using a lender that uses Blend (and therefore also Plaid), you wouldn’t really see Blend or Plaid. Your experience would simply be managing your loan process on your chosen lender’s digital mortgage app that happens to be powered by Blend and Plaid. And you’re authorizing the data to pass through Blend and Plaid to get to your lender.

Your relationship and your data resides with your chosen lender.

2. What about your data from other banks that your mortgage lender needs? To approve you for a mortgage, all lenders must verify bank accounts, balances, and transactions from all banks you work with.

So if you’re getting a mortgage from Bank A but have other checking, savings, and investment accounts with Bank B, Bank C, and Bank D, then Bank A will require you to verify those other accounts with them. If Bank A’s loan application uses Plaid (directly or via another vendor like Blend), their loan application will simply prompt you to direct-connect Banks B, C and D and the data is piped over with your consent. Bank A only sees the other banks’ data needed to make a loan approval decision, and has zero control of your accounts at those other banks.

And there is typically a time limit around 60 days where this access is given.

3. Does Plaid use your data to help lenders market to you? Since Plaid is helping your lender make and maintain bank connections that enable your lender to make a fast loan decision for you, we can expect that you may be asked for permission to maintain these connections for more than 60 days in the future.

This would give your lender an ongoing lens on your financial situation, and they could then make you extremely relevant offers based on what’s going on in your life at any given time.

Therefore I think we can also expect Plaid and others to, with your consent, help lenders analyze your data so that the lender you’ve chosen and authorized to keep your data can make you these extremely relevant offers instead of sending you evergreen marketing spam with recipes and home cleaning tips.

More to come on this financial data topic to help you understand the line between your privacy and relevant financial recommendations.

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Reference:

Our Journey In Mortgage (by Plaid’s mortgage head Kate Adamson)

Plaid Banks $250m In Round Led By Mary Meeker At Unicorn Valuation (Crunchbase)

The Hidden Power of Plaid (Index Ventures)

Fintech’s Happy Plumbers (Forbes)

Here’s the lending data Plaid is collecting on you (Plaid)