The federal government is suing to block Visa’s $5.3 billion acquisition of fintech startup Plaid, alleging the merger violates antitrust laws.
Visa in January announced plans to acquire Plaid, which makes digital infrastructure linking financial data from people’s bank accounts to the apps they use to manage their money such as Venmo, Coinbase and Expensify.
The US Justice Department alleged Thursday that Visa is a “monopolist in online debit transactions” — and a new service in development by Plaid could pose legitimate competition to Visa’s business, according to the complaint in US District Court in Northern California.
“By acquiring Plaid, Visa would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debt services for merchants and consumers,” the DOJ alleges.
Visa’s $5.3 billion offer for Plaid marked “‘an unprecedented revenue multiple of over 50X’ and the second-largest acquisition in Visa’s history,” the complaint states.
Visa said in a statement that it “strongly disagrees” with the DOJ, adding that the complaint “reflects a lack of understanding of Plaid’s business and the highly competitive payments landscape in which Visa operates.” It said the merger would lead to “substantial benefits” for consumers and it plans to “defend the transaction vigorously.”
Plaid declined to comment on the lawsuit.
Visa controls approximately 70% of the online debit transactions market, compared with competitor Mastercard’s 25% share, according to the complaint. The DOJ alleges that means merchants have little choice but to accept Visa debit payments, despite complaints about the cost of Visa’s service. It also alleges Visa’s “monopoly power” creates “significant barriers to entry” for competitors.
“These entry barriers, coupled with Visa’s long-term, restrictive contracts with banks, are nearly insurmountable, meaning Visa rarely faces any significant threats to its online debit monopoly,” the complaint states. “Plaid is such a threat.”
Plaid’s existing connections to more than 11,000 US financial institutions and 200 million US consumer bank accounts could help the company overcome those entry barriers if it did not merge with Visa, the complaint states.
While Plaid doesn’t currently compete directly with Visa, the DOJ alleges that Plaid had developed plans for a new debit service that would allow consumers to make online purchases “with money debited from their bank accounts,” the complaint states.
“With this new online debit service, Plaid intended to ‘steal share’ and become a ‘formidable competitor to Visa and Mastercard,’” the complaint states, adding that the service would likely chip “away at Visa’s monopoly and resulting in substantial savings to merchants and consumers.”
Fear that Plaid’s new service would compete with its business fueled Visa’s decision to acquire Plaid, the DOJ alleges.
Visa pushed back on those allegations, saying Plaid is not a competitor or a payments company, but rather that “its capabilities complement Visa’s.”