U.S. Files Antitrust Lawsuit Challenging Visa’s Acquisition of Plaid

The Department of Justice filed an antitrust lawsuit that seeks to block Visa Inc.’s $5.3 billion deal to acquire Plaid Inc. Visa agreed to buy the financial technology company in a deal designed to increase Visa’s access to the booming financial technology sector. The Justice Department argued that the acquisition would allow Visa to unlawfully maintain a monopoly in online debit services, which in turn would lead to “higher prices, less innovation and higher entry barriers for online debit services.”

Plaid is a privately held software startup that powers financial technology apps like Venmo, Acorns and Betterment by linking the financial data from people’s bank accounts to the apps.  Plaid’s technology allows “access into consumers’ various financial accounts, with consumer permission, to aggregate spending data, look up balances, and verify other personal financial information.” Accordingly, Plaid has access to financial data from over 11,000 U.S. banks. This access, the government argues, better positions Plaid to overcome entry barriers others face in attempting to provide online debit services.

The lawsuit suggests that Visa is a “monopolist in online debit transactions,” responsible for some 70% of the market for online debit services. Mastercard, Visa’s next closest rival at around one-third of the size, has not constrained Visa’s monopoly power. This leaves merchants with little choice but to accept Visa debit payments, despite complaints about the cost of Visa’s service.

Visa earns a small fee from every transaction run on its network, varying depending on the card, but debit transactions tend to be cheaper to run on Visa’s network than credit card transactions. Those transactions ultimately bring in billions of dollars in revenue for Visa every quarter.

A new service in development by Plaid would bypass traditional debit card networks, and would be a substitute for Visa’s online debit services. According to the lawsuit, this presented a competitive threat to Visa, and the proposed acquisition therefore “would eliminate a nascent competitive threat” to Visa’s monopoly.

As evidence, the Justice Department cited the CEO of Visa’s own description of the deal as an “insurance policy” to neutralize a “threat to our important US debit business.” Further, the Department cited the $5.3 billion sale price, “an unprecedented revenue multiple of over 50x” as evidence of the deal being strategic instead of financial.

Visa, on the other hand, said it “strongly disagrees” with the lawsuit, arguing that it “reflects a lack of understanding of Plaid’s business and the highly competitive payments landscape in which Visa operates.” Further, Visa argued that Plaid is not a payment network like Visa, but a payment infrastructure company. Visa said the Department of Justice’s arguments were “legally flawed,” and it “intends to defend the transaction vigorously.”

The case represents the increased scrutiny the Department of Justice plans on taking in antitrust matters in the financial sector. Specifically, the department is focused on protecting future competition, even in cases where two companies aren’t currently rivals.