DOJ Sues Visa Over Plaid Acquisition - Antitrust Lawsuit

The Department of Justice has initiated legal action with an antitrust lawsuit, contesting Visa’s planned $5.3 billion purchase of Plaid.

Reports regarding the DOJ’s investigation surfaced last month.

According to the DOJ’s lawsuit, “The acquisition of Plaid by Visa would eliminate a developing competitive force, likely leading to considerable cost reductions and more advanced online debit services for both businesses and individuals.”

The DOJ asserts that the proposed deal would contravene Section 2 of the Sherman Act “and must be prevented,” as stated in its filing, which was published by Bloomberg Law.

In response, Visa communicated its “strong disagreement” with the DOJ’s arguments, characterizing them as “legally unsound.”

“This action demonstrates a misunderstanding of Plaid’s operations and the intensely competitive payments environment in which Visa functions,” the company stated. “The integration of Visa and Plaid will provide significant advantages to consumers seeking a wider array of financial services, and Visa fully intends to defend this transaction.”

“As we communicated to the DOJ, Plaid is not a company involved in payment processing. Visa’s business encounters robust competition from numerous entities – however, Plaid is not among them. Plaid functions as a data network, allowing individuals to link their financial accounts to the applications and services they utilize for managing their finances, and its capabilities enhance those of Visa. By working together, Visa and Plaid will deliver improved digital experiences and greater options for consumers in managing their finances and data. Visa is confident that this transaction will benefit both consumers and competition,” the statement continued.

The Justice Department contends that Visa’s dominance in the online debit market is safeguarded by substantial obstacles to new entrants and expansion. The DOJ explained that new competitors to Visa require connections with millions of consumers to attract merchants and connections with thousands of merchants to attract consumers.

DOJ attorneys highlighted Mastercard’s failure to capture more than a quarter of the online debit market as evidence of Visa’s ongoing market control. “Mastercard has not achieved significant market share from Visa, nor has it constrained Visa’s monopoly,” the attorneys wrote.

Visa also established technical impediments by implementing restrictive agreements with merchants and banks to hinder the growth of competitors in the online debit market.

“These barriers to entry, combined with Visa’s long-standing restrictive contracts with banks, are exceedingly difficult to overcome, meaning Visa rarely encounters substantial challenges to its online debit monopoly. Plaid represents such a challenge,” the DOJ asserted.

Companies such as Venmo, Acorns and Betterment are among the prominent startups and financial technology services that utilize Plaid to develop their offerings.

“Although Plaid’s current technology does not directly compete with Visa, Plaid intends to utilize that technology, alongside its existing relationships with banks and consumers, to facilitate transactions between consumers and merchants in competition with Visa,” according to the DOJ.

Visa was acutely aware of Plaid’s potential to disrupt its business. As early as March 2019, almost nine months prior to the acquisition announcement, the vice president of corporate development and head of strategic opportunities voiced concerns regarding Plaid’s business.

“I don’t want to be IBM to their Microsoft,” the executive reportedly stated, as outlined in the lawsuit filed by the DOJ. Visa’s chief executive also explicitly acknowledged that Plaid posed a threat.

The company projected that Plaid could reduce Visa’s debit business revenue by $300 million to $500 million by 2024 if it continued to operate independently. In the words of Visa’s executives, it represented an “[e]xistential risk” to its U.S. debit business and could have compelled Visa to accept reduced profit margins – a development that would benefit businesses and consumers.