Fintech Update: DOJ’s Anti-trust Plaint Muddles Visa-Plaid Deal

The Visa-Plaid deal is under serious threat. A law that was first passed in 1890 stands between fintech’s largest market share and fairness in the market. The DOJ has docked this year’s biggest fintech acquisition for violating anti-trust norms as per the  Sec.2 Sherman Act and Section 7 of the Clayton Act. 

In a major jolt to Visa’s ambition to continue as a monopoly in the debit cards and online payments business, the US Department of Justice (DOJ) has filed a complaint to thwart the merger. The Visa-Plaid deal was expected to close within three to six months of signing the agreement, but the latest FTC plaint has hit the rocketship’s “ojo de buey.”

What began as fintech’s most powerful acquisition in 2020, ahead of the COVID-19 crisis, could now be locked in a fierce battle that could see Visa losing out its $5.3 billion deal. According to the lawsuit filed by the US DOJ dated 5 November 2020, Visa’s intention to acquire Plaid is riddled with choices to plug “a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.” The DOJ filed the plaint notifying the bench that Plaid’s acquisition violates Section 2 of the Sherman Act, 15 U.S.C. § 2, and Section 7 of the Clayton Act, 15 U.S.C. § 18, and must be stopped.

Will Visa Manage to Scuttle the Anti-trust Accusations

Today, Visa is the world’s largest debit card processing company, leading by a fair margin ahead of the second-best Mastercard. With over 43 billion debit card transactions globally in 2019, of which 500 million cards were active in the US alone, Visa controls more than two-thirds of the global online transactions (70%).

Founded in 2012, Plaid managed to raise close to $310 million funding from 16 investors, which include Index Venture, Spark Capital, AMEX, Andreessen Horowitz, Kleiner Perkins and others. Visa is also one of the investors. In its last funding round in December 2018, Plaid raised $250 million. Just over a year after, getting acquired by Visa is a remarkable achievement for any fintech startup company. But, Plaid did it, and it was a decisive moment in fintech’s 2020 revolution.

The DOJ / FTC have other plans, of course.

The latest DOJ plaint accuses Visa of building its monopoly by restricting the growth of a very innovative fintech startup Plaid, which in a very short duration of time acquired connections to 11,000 U.S. financial institutions and more than 200 million consumer-bank accounts in the United States. Despite competition from other relatively high-profile startups in the fintech space, Visa found Plaid to be the biggest growth barrier in its monopoly.

When Visa acquired Plaid in January 2020, the CEO had envisaged the Visa-Plaid deal as a relatively straightforward approach to the fintech future. He was quoted as saying the deal as “strategic, and not financial” in nature.

By its own admission in a press note, Visa had mentioned:

“Today, one in four people with a U.S. bank account have used Plaid to connect to more than 2,600 fintech developers across more than 11,000 financial institutions.”

The press release further read –

“Visa’s acquisition of Plaid represents both an entry into new businesses and complementary enhancements to Visa’s existing business. First, Plaid’s fintech-centric business opens new market opportunities for Visa both in the U.S. and internationally. Second, the combination of Visa and Plaid provides the opportunity to deliver enhanced payment capabilities and related value-added services to fintech developers. Finally, the acquisition will enable Visa to work more closely with fintechs through all stages of their development and drive growth in Visa’s core business.”

The plaint mentions that the Visa-Plaid Deal is in violation of Section 7 of Clayton Law, stated as below:

Visa has violated “Section 7 of the Clayton Act, which was “designed to arrest the creation of monopolies ‘in their incipiency,’” United States v. Gen. Dynamics Corp., 415 U.S. 486, 505 n.13 (1974), and similarly prohibits a monopolist from bolstering its monopoly through an acquisition that eliminates a nascent but significant
competitive threat. The Supreme Court has explained that an acquisition can violate Section 7 when “the relative size of the acquiring corporation ha[s] increased to such a point that its advantage over its competitors threaten[s] to be ‘decisive.’” Brown Shoe Co. v. United States, 370 U.S. 294, 321 n.36 (1962). Visa already has a decisive market position through its online debit monopoly, and would unlawfully extend that advantage by acquiring Plaid. For the reasons set forth in this Complaint, the proposed acquisition must be enjoined.”

What’s Next as per FTC’s Anti-trust Regulations?

Plaid laid down its vision for fintech industry as the leader in “democratizing financial services through technology.” From building beautiful consumer experiences with engaging UI UX, developer-friendly infrastructure, and intelligent tools, this Big Data-based platform stood out of the league with its thoughtful idea of “transforming payments experience” forever. What’s Visa’s goal?

“Everywhere you want to be”.

Sadly, the Visa-Plaid deal might face the hot-button of the DOJ if the FTC norms are understood clearly.

As per the latest FTC policies, the penalties for violating the Sherman Act are stated to result in severe repercussions. According to FTC anti-trust laws, the Sherman Act is one of the few laws in the US that is both a civil and criminal law. The individuals and businesses found to violate it may be prosecuted by the Department of Justice that could impose criminal penalties of up to $100 million for a corporation and $1 million for an individual, along with up to 10 years in prison.

Under federal law, the maximum fine may be increased to twice the amount the conspirators gained from the illegal acts or twice the money lost by the victims of the crime, if either of those amounts is over $100 million.

As per unconfirmed reports published online, the Visa-Plaid deal could hound the monopolists in the financial payments and banking transactions processing business, even if it means leveraging smaller Big Data analytics, AI and RPA startups for their benefit.

Plaid recently updated its website to engage customers by advertising its domination in the fintech space. It currently provides integration with almost every leading banking, wealth management and financial mobile app, such as Acorns, American Express, Coinbase, Chime, Digit, Expensify, Truebill, Venmo, Varo, and others.

Here’s the full plaint published at Bloomberg Law.

[To share your thoughts and insights on the anti-trust concerns in the Big Data and Consumer Data markets, please write to us at news@martechseries.com]