Plaid Co-Founder and CEO Zach Perret.
The Ministry of Justice intends to block Visa’s planned takeover of the fintech start-up Plaid, as this would restrict competition in the payments industry.
US lawyers for the DOJ outlined the potential for expanding a visa monopoly for direct debit transactions. According to the complaint, the US $ 5.3 billion takeover announced in February must be "stopped" for antitrust reasons.
"By acquiring Plaid, Visa would eliminate an emerging competitive threat that would likely translate into significant savings and more innovative online debit services for merchants and consumers," the Justice Department said in the complaint filed in a federal court in Northern California.
The DOJ cited Al Kelly's description of the deal as an "insurance policy" in order to neutralize a "threat to our important US debit business". Plaid is a San Francisco-based financial technology company that uses APIs to connect consumer bank accounts to popular financial apps like Venmo and Robinhood. It is affiliated with more than 11,000 US banks and, according to the complaint, has developed a product that could serve as a replacement for Visa’s debit services.
In a statement, Visa said it “strongly contradicts” the Justice Department “whose attempt to block Visa’s adoption of Plaid is legally flawed and contrary to the facts”. Plaid declined to comment on the suit.
"This move reflects a lack of understanding of Plaid's business and the competitive payments landscape in which Visa operates," said a statement from Visa.
US attorneys pointed to Visa’s 70% stake in the US debit market and rival Mastercard’s inability to "gain a significant stake" or "curb Visa’s monopoly". They also highlighted the barriers to entry when building a new direct debit product.
"Visa is rarely exposed to any significant threat to its online debit monopoly. Plaid is such a threat," the lawsuit said. "Plaid plans to use this technology in conjunction with its existing banking and consumer relationships to facilitate consumer-merchant transactions in competition with Visa."
The DOJ last week raised potential concerns about the deal in a complaint against Bain & Co., who acted as advisor to the transaction. The agency said Bain withheld documents and "obstructed" his investigation. The Wall Street Journal previously reported that the deal could face legal issues.
The Visa Plaid acquisition is one of many high profile deals that could come under pressure from the DOJ this year.
According to the Journal, Credit Karma is currently in talks to sell its tax preparation business to Square in an effort to address antitrust concerns. Intuit announced it would buy Credit Karma for $ 7 billion earlier this year and also owns TurboTax. Regulators may be concerned that the combination leaves consumers with fewer choices when filing their online tax returns. Mastercard announced it would buy Finicity, a plaid competitor, for around $ 1 billion earlier this year.