The presidential election is hanging in the balance, but the U.S. Department of Justice (DOJ) is keeping busy.
A federal antitrust lawsuit filed November 5 by the U.S. Department of Justice seeks to block Visa’s proposed $5.3 billion purchase of fintech startup Plaid, a San Francisco-based fintech that enables applications to connect with users’ bank accounts.
In the court filing, the Department of Justice (DOJ) complained that Visa is buying Plaid to wipe out a competitor in the lucrative business of online debit transactions.
Specifically, the DOJ pointed out that while Plaid’s existing technology does not directly compete with Visa today, the company does have plans “to leverage that technology, combined with its existing relationships with banks and consumers, to facilitate transactions between consumers and merchants in competition with Visa.”
Like Visa’s online debit services, Plaid’s new debit service would enable consumers to pay for goods and services online with money debited from their bank accounts.
With a new online debit service, Plaid intended to “steal share” and become a “formidable competitor to Visa and Mastercard,” the complaint said. Competition from Plaid likely would drive down prices for online debit transactions, chipping away at Visa’s monopoly and resulting in substantial savings to consumers and merchants, according to the complaint.
The DOJ claims Visa’s acquisition of Plaid would violate two federal antitrust laws — the Sherman Act and the Clayton Act — and allow Visa to maintain a monopoly in online debit transactions.
“Visa seeks to buy Plaid—as its CEO said—as an ‘insurance policy’ to neutralize a ‘threat to our important US debit business,” said the Justice Department in its lawsuit.
Federal regulators had recently signaled they were preparing to pursue legal action in a bid to prevent the Plaid deal.
Meanwhile, Visa swiftly condemned the lawsuit.
In a statement, Visa objected to the DOJ’s “legally flawed” lawsuit.
“This action reflects a lack of understanding of Plaid’s business and the highly competitive payments landscape in which Visa operates. The combination of Visa and Plaid will deliver substantial benefits for consumers seeking access to a broader range of financial-related services, and Visa intends to defend the transaction vigorously,” Visa said.
Visa went on to say that Plaid is not a payments company and, therefore, does not compete directly with the payments giant. Plaid’s data network enables users to connect financial accounts to apps and services, and Visa contends Plaid’s capabilities complement its own.
“Together, Visa and Plaid will deliver better digital experiences and more choice for consumers in managing their money and financial data. Visa is confident that this transaction is good for consumers and good for competition,” Visa said.
Plaid is already used by thousands of applications – including fintech unicorns like Venmo, Robinhood, and Coinbase, allowing users of those apps to easily access funds from their bank accounts.
Plaid’s longer-term play – of unleashing direct payments between bank accounts – poses something of an existential threat to card providers. Visa currently makes up about 60% of the credit and debit card market; acquiring Plaid would give Visa a huge leg up in expanding beyond its core business and preparing for a future, potentially cardless world. The company declined to comment on the lawsuit.
As mentioned above, news of the Plaid investigation first broke last week, and the lawsuit comes on the heels of a larger DOJ antitrust lawsuit against Google. In a similar crackdown of a fintech mega-deals, the DOJ is reportedly investigating Credit Karma’s $7 billion bid for Intuit as well as the proposed $825 million purchase of fintech-app connector Finicity by Mastercard. These three deals represent more than $13 billion in fintech M&A that is in jeopardy.
Plaid has raised over $300 million in venture funding to date, including from the venture arms of Goldman Sachs, Citi and Visa rival American Express.