Justice Department Files Lawsuit to Block Visa’s Plaid Acquisition
Reports that the United States Department of Justice was considering action against Visa in regards to their planned acquisition of Plaid came to fruition this morning. As TechCrunch reports, the Justice Department has filed suit against both companies on antitrust grounds. Earlier this year, Visa announced that it intended to purchase Plaid for an eye-popping $5.3 billion. Now, that deal could be in peril.
For those unfamiliar, Plaid offers an API that allows apps and services to securely connect to “read only” banking info. This technology is currently used by some of the top FinTech platforms, including Acorns, Venmo, Robinhood, and many more. Currently, Plaid supports more than 11,000 financial institutions, allowing users to securely connect their accounts to these external services.
The lawsuit — known as the United States of America v. Visa Inc. and Plaid Inc. — accuses that Visa of being “monopolist in online debit transactions” and suggests that Plaid poses a threat to that. As a result, the DOJ argues, “By acquiring Plaid, Visa would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.” Complete text of the lawsuit, which was filed in San Fransico, was published by Bloomberg Law.
In a statement, Visa said of the suit, “Visa strongly disagrees with the Department of Justice (DOJ), whose attempt to block Visa’s acquisition of Plaid is legally flawed and contradicted by the facts. 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. ” They concluded, “Visa is confident that this transaction is good for consumers and good for competition.”
Rebutting the lawsuit, Visa states that Plaid is not a payments company and, thus, does not currently compete with Visa. However, the DOJ acknowledges this in its suit, but states, “While Plaid’s existing technology does not compete directly with Visa today, Plaid is planning to leverage that technology, combined with its existing relationships with banks and consumers, to facilitate transactions between consumers and merchants in competition with Visa.” Additionally, the lawsuit quotes a Visa exec who, in 2019, said of Plaid, “I don’t want to be IBM to their Microsoft” — a statement that the agency says shows that Visa acknowledged the FinTech firm as a threat.
Notably, shortly after Visa announced plans to snap up Plaid, rival Mastercard moved to acquire Finicity. While smaller in scale than the Visa-Plaid deal, the transaction could still be valued as high as $985 million (an $825 million base price plus potential for $160 million in earn-out opportunity). Reportedly, the DOJ is also investigating this purchase. Elsewhere, in other FinTech deal news, Credit Karma is apparently looking to sell its tax prep platform to Square in a bid to appease regulators who have yet to approve the personal finance site’s acquisition by Intuit.
While the DOJ’s suit had been expected for weeks, that doesn’t make its arrival any less significant. What’s more, unlike the apparent issues with other transactions such as the aforementioned Intuit-Credit Karma union that have some potential solutions, the Justice Department doesn’t seem to suggest any remedies outside of barring the acquisition completely. All in all, this lawsuit is sure to capture the attention of the FinTech community as it moves forward.