Zach Perret, CEO & Co-founder, Plaid. Photo credit: Harry Murphy/Web Summit via Sportsfile, licensed under Creative Commons

 The United States Department of Justice (DOJ) has filed a suit to block the proposed acquisition of fintech company Plaid by payments giant Visa, asserting that Visa would “eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers” by acquiring Plaid.

As known, Visa is a major processor of online debit transactions with a major market share both in and outside the US. In 2019 alone, Visa earned $4 billion from its debit business in the US. Plaid, on the other hand, is a data network that enables access to important financial data for fintech providers. The DOJ frames that Plaid’s large data network theoretically represents a barrier-break into the debit card market controlled by Visa should Plaid one day decide to compete with Visa, and that Visa is seeking to acquire the company in order to prevent a potentially significant future competitor from emerging. 

The DOJ frames Visa’s proposed acquisition of Plaid as an “insurance policy” against the formation of a “formidable competitor to Visa and Mastercard”. It gets interesting where the DOJ states in its suit that Visa’s Vice President of Corporate Development asserted of not wanting “to be IBM to their Microsoft” as regards Visa to Plaid. 

It’s alleged that executives at Visa executives became “alarmed” when conducting due diligence to acquire Plaid after finding out the fintech company’s plans to add a “meaningful money movement business by the end of 2021”. 

In its suit, the DOJ claims Visa’s Chief Executive, Al Kelly, concluded that Plaid was “clearly, on their own or owned by a competitor going to create some threat to our [Visa’s] important US debit business” and told the company’s Chief Financial Officer that purchasing Plaid would be an “insurance policy to protect our [Visa’s] debit biz in the US.”

To back up its claim, the DOJ points to Visa’s $5.3 billion acquisition price for Plaid as one that amounts to over 50x Plaid’s current annual revenues. It’s claimed that Visa’s CEO justified the high purchase price as a “strategic, not financial” move because of a supposed threat to the company’s debit business.

In response, Visa has rebuked the DOJ’s statements, stating that the suit against it is “legally flawed and contradicted by the facts”. “The combination of Visa and Plaid will deliver substantial benefits for consumers seeking access to a broader range of financial-related services, and Visa intends to defend the transaction vigorously,” the company said.

Visa announced its intent to acquire Plaid as early as January this year and hoped the acquisition would have been completed by mid-2020. Now, with a lawsuit from the DOJ, Visa has to battle to see its acquisition through and risks having its proposed acquisition prevented by authorities.

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