On Thursday, November 5, 2020, The Department of Justice blocked Visa’s acquisition of Plaid Inc. by filing a civil antitrust lawsuit against the credit card company. The lawsuit seeks to stop Visa’s $5.3 billion deal to purchase the successful fintech firm Plaid, believing that Visa is monopolistic in its online debit services by charging their patrons and distributors billions of dollars fees for online transactions each year. DOJ filed legal action against Visa in the San Francisco Court of California’s Northern District.

According to Assistant Attorney General Makan Delrahim, Visa has extracted billions of dollars from its consumers in exchange for using the company’s online transactions. Visa’s plan to purchase Plaid can hurt its current and future customers’ online services and settlements. 

“American consumers and business owners increasingly buy and sell goods and services online,” said Delrahim. “Now, Visa is attempting to acquire Plaid. If allowed to proceed, the acquisition would deprive American merchants and consumers of this innovative alternative to Visa and increase entry barriers for future innovators,” he added.

The supposed $5.3 billion agreement would have been Visa’s second-largest acquisition in its entire company history, second only to its buyout of Visa Europe several years ago.

Plaid allows its consumers and business clients to use online payments by paying directly from their bank accounts. TransferWise, SoFi, Stripe, and Venmo are some of the services that use Plaid as a means for their patrons to send money payments to other affiliations without using the debit card infrastructure. Both Visa and its competitor Mastercard mainly manages this method.

For every transaction processed online under its network, Visa takes a small fee. The amount differs depending on the card used for the operation. Visa’s network offers cheaper debit transactions compared to credit card transactions. However, when tens of billions sum up from those debit card settlements, Visa gains billions of dollars in revenue every quarter. 

The lawsuit argues that Visa’s CEO saw this business purchase as an “insurance policy” to serve as protection against “a threat to our important US debit business.” Furthermore, the Justice Department asserts that Plaid will stay as a competitive ultimatum against Visa’s monopoly by providing a foundation that could bypass the traditional debit system. Once Plaid is stripped of its independent company status, Visa debit cards become more expensive. In turn, customers and merchants have to pay higher fares to obtain Visa debit cards. However, if Plaid remains a free and independent firm in developing its competing payment platform, Visa will then “be forced to accept lower margins or not have a competitive offering.”

“Visa’s proposed acquisition of Plaid would forestall this competition,” the lawsuit said, “allowing Visa to maintain its monopoly position and super competitive prices in online debit,” the statement added.

However, Visa’s CEO clarified to its Board of Directors that the deal is a strategic move and not a financial one. He also noted that the purchase of Plaid Inc ensures the protection of the debit card business. Furthermore, Visa clarified that Plaid is not a payment network but a payment infrastructure company.

“This action reflects a lack of understanding of Plaid’s business and the highly competitive payments in which Visa operates,” Visa issued in its statement.

Visa is a global payment company that manages the United States’ most extensive debit system. The company is a Delaware corporation mainly based in the Foster City of California. In 2019, Visa earned approximately $23 billion with its revenues.

Plaid Inc. is a financial services company that operates the United State’s leading data aggregation program. The company is also a Delaware corporation based in San Francisco, California, and grossed approximately $100 million in its revenues in 2019.