The United States, represented by the Department of Justice, has filed a lawsuit to stop Visa Inc.’s acquisition of Plaid Inc. If completed, the plaintiff argues, the deal would constitute monopolization in violation of Section 2 of the Sherman Act and also Section 7 of the Clayton Act. The Northern District of California complaint argues that through the purchase, Visa intends to neutralize the threat Plaid poses to its “monopoly.”
The filing claims that Visa is both a rich and powerful company that has led the online debit market field for years. Allegedly, Visa is a monopolist in that market, holding approximately 70% thereof in part due to the company’s ubiquity among consumers. The complaint stated that “merchants have no choice but to accept Visa debit despite perennial complaints about the high cost of Visa’s debit service.”
Mastercard, Visa’s “only long standing rival in online debit services” has reportedly neither gained footing against Visa nor restrained Visa’s monopoly. Additionally, Mastercard only holds about 25% of the market, the filing reports. Barriers to entry combined 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.
Allegedly, Plaid, a San Francisco based company incorporated in Delaware, is an innovative business poised to dislodge Visa’s stranglehold of the online debit market. The complaint reports that Plaid already supports thousands of fintech apps, has an association with more than 11,000 domestic financial institutions, and over 200 million consumer bank accounts through services it offers.
The connections it has established and the “development of its own end-to-end pay-by-bank debit service directly threatens Visa’s online debit business,” the complaint explains. According to the filing, “[o]nce deployed, Plaid’s service would provide a reliable, less-expensive method of online debit payments by enabling consumers and merchants to transact for goods and services.”
The filing recounts that when Visa realized how Plaid could and was going to meaningfully compete with it, the news incited alarm within the company. On January 13, Visa offered to purchase Plaid in what still may become the second-largest acquisition in Visa’s history.
Acknowledging that the proposed offer “‘does not hunt on financial grounds,’” Visa’s CEO defended the astronomical purchase price as a “strategic, not financial” decision, because “‘our US debit business is critical and we must always do what it takes to protect this business,’” he reportedly said. Further, the CEO supposedly touted the acquisition as an “‘insurance policy to protect our debit biz in the US.’”
The United States alleges that the proposed deal would result in higher prices for online debit transactions, less innovation, and would raise competitors’ barriers to entry. In addition, the acquisition would provide Visa with “access to Plaid’s enormous trove of consumer data, including real-time sensitive information about merchants and Visa’s rivals.” The plaintiff argues that the sale of Plaid “must be stopped,” and seeks a declaration that it violates the Sherman and Clayton Acts and a permanent injunction halting the sale as proposed.
