On November 5, 2020, the Department of Justice (DOJ) filed a civil antitrust lawsuit in the U.S. District Court for the Northern District of California seeking to block Visa Inc.’s (Visa) $5.3 billion acquisition of Plaid Inc. (Plaid), announced in January.  According to the DOJ, the acquisition would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers in violation of Section 2 of the Shearman Act and Section 7 of the Clayton Act, which make certain monopolization and monopoly maintenance conduct illegal.  Visa stated the DOJ’s case is “legally flawed” and that it will “vigorously” defend the transaction.

According to the DOJ, Visa controls approximately 70% of the “online debit transaction” market and charges consumers and merchants billions of dollars each year in fees to process online payments. The DOJ alleged that Visa has protected its monopoly for years with various “insurmountable” exclusionary tactics against the entry and expansion of rivals such as contractual and technical restrictions that prevent banks from competing for online debit services.  According to the DOJ, new entrants also face significant barriers to entry and expansion because they need to secure connections with millions of consumers and merchants to effectively compete, the DOJ alleged.

Plaid is developing an online payments platform that the DOJ claims is uniquely positioned to challenge Visa’s monopoly and lower prices paid by consumers and merchants.  As DOJ alleges, Plaid’s technology connects thousands of fintech companies (including Venmo, Acorns, and Betterment) with more than 200 million consumer bank accounts and 11,000 U.S. banks.  According to the DOJ, although Plaid does not currently compete with Visa, it planned to leverage these connections to build a “meaningful money movement business by the end of 2021” that would challenge Visa’s monopoly by allowing users to pay merchants directly from their bank accounts using banking credentials rather than a debit card.

Central to the DOJ’s complaint are citations to multiple statements from Visa’s internal documents about the Plaid acquisition and Plaid’s alleged competitive threat.  According to the complaint, Visa’s CEO viewed Plaid as a “threat to our important US debit business” and stated that the acquisition was an “insurance policy” to protect Visa’s business. Visa’s CEO also justified the transaction (the second-largest in Visa’s history) as a “strategic, not financial” move, and noted that “[t]he acquisition is in part defensive” to protect “commercial results”.  Visa feared that Plaid “on their own or owned by a competitor [was] going to create some threat” and calculated a “potential downside risk of $300-500M in our US debit business” by 2024 should it not be acquired.  If Plaid remained free to develop its competing payment platform, then “Visa may be forced to accept lower margins or not have a competitive offering.”

The DOJ’s complaint is a reminder of the antitrust agencies’ current focus on nascent competition and so-called “killer-acquisitions” transactions, particularly in the technology and finance sectors.  Interestingly, the complaint also illustrates that the DOJ is willing to make broad competitive effects arguments, for example, that the Plaid transaction would lead to further anticompetitive acquisitions and barriers to entry by giving Visa a “front row seat to what is happening in the fintech world” as well as access to Plaid’s “enormous trove” of data.