Online marketplaces need to follow KYC rules, so they must make sure that the vendor who’s selling merchandise on their platform is the same vendor whose bank account is connected to the platform. Identity verification isn’t a core function of online marketplaces because their job is to help their merchants make sales. So Etsy has entered into a partnership with the data aggregator and open banking service provider Plaid to verify its customers’ identities.
This partnership has raised concerns among merchants. If you’re selling your merchandise on Etsy you might be surprised at the amount of data that Plaid can collect. Plaid doesn’t just collect financial data, it gathers geographic data and personal data as well. There are benefits to sharing this data. Plaid can share your business data with third-party fintech apps that help you automate accounting, among other things, with your permission. This sharing is known as open banking. But you might also want to know about ways to limit the amount of data that Plaid can collect.
Manual Verification Provides More Privacy
Right now, Etsy is using Plaid to speed up the bank account verification process for merchants. It’s offering an optional service, instant verification, that allows Plaid to log into your bank account with your credentials. Plaid can then see all of the information that you can see when you log in, including your transaction records. This information allows Etsy to verify your account more quickly, and one of the main goals for startups is speeding up the customer onboarding process.
If you’re reading that and you’re thinking “no way”, remember that Etsy just needs to verify your identity and there’s a slower way to do it. If you select manual verification instead, Etsy can send a few small payments to your bank account and that’ll prove that you own the account as well. You might have to wait a few more days to have your account verified, but Plaid won’t have your bank account credentials so it won’t be able to log into your account.
Why a Platform Might Ask for More Data
Shopify also verifies the ownership of merchants’ bank accounts. Its verification process is similar to Etsy’s manual process. The online marketplace sends a few small deposits to your checking account, and then you enter the amount of those deposits into the Shopify platform a few days later. This process doesn’t require you to share your bank log-in credentials with a data aggregator.
But in some cases, this won’t be enough information to verify your account and the verification process may fail. If that happens, an online marketplace may need to ask you for more information. For example, merchants who use Shopify’s payments service may need to provide additional personal information. These account verification methods include sending in a scanned image of your driver’s license or a document that proves that you own your business.
So if you don’t allow Plaid to scrape your bank account data, an online marketplace can’t verify your identity as easily. As a result, it may ask you for other types of personal information such as official government identification documents. You might still feel that sending in a copy of your driver’s license is less intrusive than giving a data aggregator your bank account transaction history, though.
Keep Personal and Business Bank Accounts Separate
An online marketplace needs to make sure that you own the business account that’s connected to your account on the platform. It doesn’t need to verify ownership of your personal bank account or collect any of the data from that account. So if you sign up for an account verification service, you don’t need to give that service access to all of your accounts. Your business bank account should be enough to prove your identity.
It’s also a good idea to keep your business and personal taxes separate for other reasons. For example, it’s easier to identify your business expenses and write off those expenses on your taxes if you have a separate business account. The IRS will be less likely to think that a personal expense is a business expense and vice versa.
Separating your business account from your personal account protects your other personal accounts as well. You might be worried about an account aggregator getting access to your stock portfolio data or your mortgage payment history. If those records are linked to your personal account and not your business account, then giving the aggregator your business account data won’t give it access to information about your stock holdings or your mortgage.
Monitor Bank Account Sharing Permissions
Plaid operates a platform called Plaid Portal where you can see which apps have access to your account data. The portal lists the online services that can see your data as well as the specific bank accounts where you’ve authorized data sharing. So if you want to increase your privacy, you can remove permission for an app to access specific bank accounts. You can also end data sharing with a service that you’re no longer using.
If an online marketplace sends a payment to a merchant’s bank account to verify the merchant’s identity, that’s a one-time process. The marketplace might need to verify account ownership again if the merchant links a new bank account to the marketplace account, but the marketplace shouldn’t need ongoing access to a merchant’s bank account records once the merchant’s identity has been confirmed. So it may be possible to use a data aggregation service to verify your account and then revoke permission for the service to access your account once the marketplace has verified your identity.
Conclusion
If you’re concerned about privacy, you don’t have to give an account aggregator your bank login details. An online marketplace can still verify your identity by sending a few small payments to your bank account. Aggregators do provide useful benefits, though. One important benefit is that they allow you to sign up for an account on a new marketplace platform more quickly. They can also share data with third-party apps that provide services like automatically calculating and paying your sales taxes for you.