Does Zelle Use Plaid [Complete Guide]

Zelle is a money transfer service that enables you to send money instantly between two US bank accounts. If you are a Zelle user and looking to understand if Zelle uses the Plaid service, you are on the right post to get the complete answer to this query.

To give you the answer, in a nutshell, Zelle does not use Plaid and is a direct money transfer service between banks, developed and run by a consortium of prominent banks that include Bank of America, Wells Fargo, JP Morgan Chase, etc. Plaid, on the other hand, is a service that enables linking a bank account to a financial app.

Zelle is a way to transfer money between two bank accounts, while Plaid is a way to connect a user’s bank account to a financial app. Plaid is not a money transfer service, it only serves as an intermediary to facilitate a connection with your bank account.

The two networks serve entirely different purposes, independent of each other, and have little in common.

Zelle was launched in 2017 by a group of banks (under the entity Early Warning Service) as a response to the growing popularity of peer-to-peer payment apps like Venmo and Cash App. Plaid is an independent company that was founded in 2013, as a start-up that has consistently been receiving investment from marquee investors that include Visa (recently valued at more than $13 billion)

Zelle vs Plaid- Technology

Zelle uses a form of money transfer that can be called instant ACH to move money directly between bank accounts.

Automated Clearing House (ACH) is the system used for standard money transfers which usually take 1-3 business days. But in the case of Zelle, the money is sent instantly but finalized later using normal ACH processing.

Zelle does not hold any money or offer any wallet like Venmo or Cash App. Your money will never sit with Zelle but always stay with either of the banks involved in the transaction.

Since Zelle also allows you to link debit cards (usually where the participating bank does not have an inbuilt option), it uses the Mastercard and Visa Direct rails to facilitate the instant transfer in such cases.

Plaid on the other hand uses API and cloud infrastructure to facilitate a secure connection between banks and financial apps. It is a pipeline that enables communication between banks and financial apps.

With Zelle, you link an email id or US phone number to your bank account and use that as the credential to send and receive money. On the other hand, Plaid uses the existing online credentials of your bank account, to authenticate and identify you as the owner of the bank account.

Zelle also operates on the front-end integrated as a feature of various mobile banking apps and also has its app on the PlayStore and AppStore.

Plaid works in the back end, although it has released a portal where users can create an account to have visibility on which apps and banks they have linked via Plaid.

Zelle vs Plaid- Money Making Model

Zelle does not make money as there are no fees involved. But instead, it helps the participating banks earn revenue by retaining their market share and offering better products to their users.

Zelle network is owned and operated by Early Warning Services (collection of 30 banks) and the entity may charge fees from the participating banks to keep the network running.

Plaid, on the other hand, makes money, by charging the financial apps or fintech which use Plaid service to enable their users to link bank accounts. It also helps provide a variety of financial data points to such apps, when authorized by users, which can help them offer better products and services.

Zelle vs Plaid Network

The Zelle network has more than 1000 participating banks and also includes payment processors, and network partners MasterCard and Visa.

Plaid on the other hand works with more than 11,000 banks and financial institutions and more than 5,000 fintech.

Plaid is continuously expanding its scope into other areas like identity verification and has grown immensely with the boom of new-age financial services, especially popular among the millennials.

There are also increasing speculations that Zelle would expand to include merchant payments as an offering, as currently meant only for transactions with people you know and trust.

Zelle vs Plaid Controversies

In a world that is increasingly becoming digital-first and highly interconnected, the use of services like Zelle and Plaid is going through the roof.

However, this is not without its share of controversies.

Zelle has attracted a lot of negative publicity on account of various scams that happen using the platform. And Banks are doing little to help here, putting the onus on the users on most occasions. A google search on Zelle scams will bring up a lot of posts of such stories.

Zelle does not have any buyer protection and is to be used only with people you know and trust. Some users have also complained of an account created in Zelle without even opting in.

Zelle has been trying to address this by educating its users on the various scams and how to protect their accounts.

Plaid, on the other hand, is called out for its data privacy issues. Many users want to avoid giving out their online bank credentials to Plaid but are often forced to do so as there is no other option.

Plaid, operates on the back end and many users don’t understand how the data is being used and what authorizations they end up giving to the service.

There was also a recent case where Plaid agreed to settle by paying $58 million to users who had linked their bank accounts to Venmo, Coinbase, etc. on account of excess data collected and interface. While the company says the issue is already corrected since then, it agreed to settle by paying a fine.

Wrap Up

Zelle and Plaid are poles apart and operate independently of each other. The only common thing about Zelle and Plaid is their use is growing rapidly in the digital economy. Zelle connects two US bank accounts directly and is formed by a consortium of banks. Plaid enables you to link your bank account with financial apps and is a new-age start-up company.

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I have a passion for finance and technology. On this blog, I share helpful information on products and services that we use in our daily lives and simplify things I learned the hard way.

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