US Department of Justice (DoJ) Challenges Visa’s Proposed $5.3B Acquisition of Plaid Due to Antitrust Laws
The U.S Department of Justice (DoJ) has challenged Visa’s acquisition of financial data aggregation firm, Plaid. According to the filing on Nov 5, Visa's move to initiate a transaction process for purchasing Plaid at $5.3 billion is a monopolistic approach. It deprives the American people of cheaper and better debit-focused innovations. The filing reads,
“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.”
It goes on to term Visa as a ‘monopolist in online business transactions’ given that it enjoys a market share of around 70% in the online debit transactions industry. The DoJ claims that Visa will be violating Section 7 of the Clayton Act and Section 2 of the Sherman Act as per the filing made in a North California based federal court. Both Visa and Plaid are defendants in this case, whereas the DoJ is the complainant.
While Plaid’s focus area is not the distribution of debit cards, this Fintech startup proposes a significant value in today’s world where data is the new gold. In fact, the firm received a strategic investment from both Visa and Master card back in 2019. This platform is designed to harmonize interaction between different databases held by financial service providers, including banks. Apparently, the firm was on its way to disrupt Visa’s fort in the online debit service before the ‘monopoly’ swung in to acquire them.
Per the DoJ filing, Visa’s senior executives, including the firm’s CEO, have previously hinted at the move to acquire Plaid as a strategy to neutralize competition. This strategic decision was particularly triggered by information that Plaid had plans to launch a parallel competition to Visa’s money movement business by the end of 2021.
At the time, Visa’s downside risk estimation for the next four years stood at $300-500 million, should Plaid have been acquired by a rival. This prompted them to act swiftly with the CEO noting that ‘Visa seeks to buy Plaid as an “insurance policy” to neutralize a “threat to our important US debit business.’ A statement that appears to have rattled the DoJ is now a focal point in its filing against Visa and Plaid.
Nonetheless, Visa has indicated through a spokesperson who shared with the Wall Street Journal that they intend to defend the Plaid transaction,
“Visa intends to defend the transaction vigorously … Visa’s business faces intense competition from a variety of players — but Plaid is not one of them.”