U.S. DOJ challenges Visa’s $5.3B acquisition of Plaid

The U.S. DOJ has filed an antitrust lawsuit for Visa’s proposed acquisition of Plaid, alleging it would limit competition in the industry.

By · Nov 6, 2020 . 6min read

Visa acquisition of Plaid latest news

The U.S. DOJ is suing Visa Inc. in an attempt to block its proposed $5.3 billion acquisition of Plaid Inc., a startup that Visa executives supposedly regarded as holding the potential to advance one of its core businesses. The DOJ (Department of Justice) has filed an antitrust lawsuit against Visa. The lawsuit claims the merger violates antitrust laws.

Visa’s payments network is utilized by merchants across the globe to process debit and credit card transactions. In the U.S., the company processes around 70% of online debit transactions. Plaid also facilitates online transactions. However, it performs a distinct role in the market. The startup offers a platform which digital financial services like mobile banking apps utilize to allow their users to make investments with funds from their bank accounts. Plaid’s value proposition is that it protects companies from the cost of manually developing integrations for equating to their users’ bank accounts. 

Visa unveiled Plaid acquisition plans in January.

Plaid has over 2,500 fintech consumers. It includes various the most prominent players in the segment, including corporations like PayPal Holdings and Stripe. It is expected that about one in four Americans have adopted Plaid to combine their bank accounts to a fintech service. Visa, in January, declared plans to acquire Plaid.

In the new lawsuit, the U.S. Justice Department claims that Visa’s acquisition of Plaid amounts to an effort to eliminate a nascent competitive peril. It further elucidates that Visa controls approximately 70% of the online debit transactions market. It is in association with competitor Mastercard’s (MA) 25% share. The DOJ claims that it means merchants have limited choices but to take its debit payments. However, one cannot ignore the complaints about Visa’s service cost. It also alleges Visa’s monopoly power develops prominent obstacles to entry for opponents. The Justice Department says Plaid has a unique opportunity to challenge Visa. Moreover, this would likely point to large savings and more innovative online debit services for merchants and customers.

Visa’s proposed acquisition could limit those benefits from materializing, the lawsuit states. Moreover, the Justice Department directs that the deal violates the Sherman Antitrust Act and the Clayton Antitrust Act. The antitrust lawsuit states, Plaid doesn’t recently provide a service that undeviatingly encounters Visa by enabling users to make payments to online merchants. Nevertheless, the startup had intentions to build a significant money movement business by the end of 2021. Visa officials allegedly found out about the plan while conducting due diligence for the acquisition and decided to purchase Plaid as an “insurance policy.”

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