Visa Plaid antitrust
Regulation,  Technology,  United States

U.S. sues to stop Visa’s acquisition of payments fintech Plaid

The Department of Justice brought an anti-trust suit seeking to block the deal for Plaid, which lets merchants bypass online debit card payment middlemen

The Department of Justice has filed an anti-trust suit asking a court to block Visa’s pending acquisition of Plaid, a payments-focused fintech firm used by a number of cryptocurrency exchanges including Coinbase, as well as more than 11,000 banks.

Plaid is essentially an on/off ramp connecting consumers’ bank accounts directly with apps used by merchants. This lets them bypass debit card middlemen. Visa is far and away the leader in online debit card payments, with a 70% market share.

In Nov. 5 filing with the U.S. District Court for the Northern District of California, the Department of Justice (DoJ) claimed in a court filing that as “Visa learned more about Plaid’s efforts to launch its own pay-by-bank debit service that would directly compete with Visa, its executives grew increasingly alarmed.”

According to the DoJ release, “Visa’s CEO viewed the acquisition as an ‘insurance policy’ to protect against a ‘threat to our important US debit business.’”

Calling pay-by-bank “a new form of online debit service that threatens Visa’s monopoly,” the  DoJ alleged that “[u]ltimately, Visa recognized that the best course of action for its business was to eliminate Plaid as a competitive threat by purchasing Plaid itself. In internal documents, a Visa executive observed that ‘[t]he acquisition is in part defensive, not just for Visa but also on behalf of our largest issuing [bank] clients, whom we believe have a lot to lose if [pay-by-bank transactions] accelerate as the result of Plaid landing in the wrong hands.’”

Visa vigorously denied the allegations and intends to fight the suit and go through with the $5.3 billion purchase.

The DoJ’s “attempt to block Visa’s acquisition of Plaid is legally flawed and contradicted by the facts,” Visa said in a statement. “This action reflects a lack of understanding of Plaid’s business and the highly competitive payments landscape in which Visa operates.”

Bypassing the middleman

Coinbase uses Plaid as a way of connecting directly to customers’ bank accounts without having any access to that information itself, the exchange says in its Help Center. 

“For US customers, you can verify your account in just a few minutes by entering your bank credentials,” Coinbase explains “[t]hese banking credentials are never sent to Coinbase, but are shared with an integrated, trusted third-party, Plaid Technologies, Inc., to facilitate instant account verification.”

More than 2,600 fintech apps—including 80% of the largest apps—use Plaid’s service, according to the filing. It also connects to more than 200 million consumer bank accounts.

Virtual Capital Ventures General Partner William Mougayar called Plaid a leader in the “unstoppable finance decentralization trend” when the Visa acquisition was announced this January, in an article titled “Let’s Imagine. What if Plaid Was Acquired by a Blockchain Company?”

Mougayar said he believes “that FinTech, DeFi, and blockchain-based financial services are allowing us to gradually depend less and less on large banks as our primary financial services providers. Just imagine for a moment how different the significance of this acquisition might have been if Coinbase had acquired Plaid, and not Visa.”

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Leo Jakobson, Modern Consensus editor-in-chief, is a New York-based journalist who has traveled the world writing about incentive travel. He has also covered consumer and employee engagement, small business, the East Coast side of the Internet boom and bust, and New York City crime, nightlife, and politics. Disclosure: Jakobson has put some 401k money into Grayscale Bitcoin Trust.