The Justice Department said in an
“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,” the government said.
The Justice Department’s case hinges on the fact that Visa handles the lion’s share of debit transactions in the U.S., with a market share that dwarfs even that of rival
Visa’s dominance in debit comes from its massive network: Banks have slapped Visa’s logo on half a billion debit cards in the U.S. and those cards are then accepted at millions of merchant locations around the world. Few companies have been able to replicate Visa’s success.
Plaid is a potential threat to that business, according to the government. Its technology allows apps like
When Visa was considering a deal for Plaid in March 2019, a Visa executive compared Plaid to an island “volcano” in the ocean and warned that beneath the surface “is a massive opportunity -- one that threatens Visa,” according to the complaint.
Months later, as Visa was conducting its due diligence on Plaid, Visa learned the company planned to create a “meaningful” money movement business by the end of 2021. Plaid was seeking to offer the service at a 50% discount to Visa’s fees, saving merchants millions of dollars -- a plan it was upfront with Visa’s executives about. Visa Chief Executive Officer
Those fears culminated in January’s surprise announcement: Visa would pay a whopping $5.3 billion for Plaid, a multiple of 50 times the data company’s revenue and Visa’s second-largest acquisition ever. Visa on Thursday reiterated its argument that Plaid complements its business.
“As we explained to the DOJ, Plaid is not a payments company,” Visa said in a statement. “Visa’s business faces intense competition from a variety of players -- but Plaid is not one of them. Plaid is a data network that enables individuals to connect their financial accounts to the apps and services they use to manage their financial lives, and its capabilities complement Visa’s.”
Visa shares rose 2.4% to $198.52 at 1:23 p.m. after earlier rising as much as 3.6%. The stock has advanced 5.4% this year, compared with the 32% gain of the S&P 500 Information Technology Index.
The Justice Department said Plaid is uniquely positioned to offer a “pay-by-bank” service that would compete with Visa’s online debit service. Instead of providing their debit card credentials when paying for goods online, consumers give their bank account information. Banks typically charge a flat fee between 2 cents and 25 cents for such transactions, whereas a $60 debit card transaction can carry a fee of as much as 39 cents, the Department of Justice found.
The Justice Department argued Plaid’s connections to consumer bank accounts means the company could be an attractive partner to merchants looking for an alternative to accepting Visa’s debit cards. Retailers have long complained about the fees associated with accepting debit cards, even after the U.S. capped the rates Visa and Mastercard can charge on such transactions roughly a decade ago.
Retailers spend more than $100 billion a year on accepting electronic card payments. While Visa and Mastercard are responsible for setting the fees that merchants are charged, most of it goes to the banks that issue the cards, with the networks taking a much smaller percentage of the fee.
“Ultimately, Visa recognized that the best course of action for its business was to eliminate Plaid as a competitive threat by purchasing Plaid itself,” the department said.
As part of its acquisition of Plaid, Visa recognized that it was also protecting the revenues of the banks it works with, the complaint said. One executive observed in an internal document quoted in the filing that banks would have “a lot to lose if [pay-by-bank transactions] accelerate as the result of Plaid landing in the wrong hands.”
“It is in our collective interest to manage the evolution of these payment forms in a way that protects the commercial results we mutually realize through card-based payments,” the Visa executive said, according to the complaint.
The Justice Department accused Visa of a “long history” of entering into agreements to quash nascent competition. The department said Visa convinced an unamed major technology company not to build or support technologies that would disrupt its business in exchange for substantial fee reductions.
Visa is currently in negotiations to renew this ongoing agreement, the complaint says, and the network is demanding that the technology company continue to abide by these practices, “including not encouraging customers to use less expensive payment methods and prohibiting marketing to non Visa options during payment checkout.”
(Updates with details from complaint starting in sixth paragraph)
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