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The government filed its antitrust complaint in San Francisco federal court on Thursday, alleging that, “by acquiring Plaid, Visa would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.”
Visa has established a near-monopoly in the online debit space through its vast network connecting “millions of merchants to hundreds of millions of consumers” in the US, per the complaint. This monopoly is protected by high barriers to entry and restrictive agreements that Visa entered to prevent rivals from growing their market share, the government said.
The DOJ asserts that Plaid is a threat to Visa’s monopoly power because it’s “been developing an innovative new solution that would be a substitute for Visa’s online debit services.”
Business Insider spoke with five legal and industry experts on how they see the DoJ’s lawsuit shaking out — and what this means for the fintech world.
The lawsuit is just the latest installment in the DoJ’s saga of beef with Visa and Mastercard
Thursday’s lawsuit is not the first time, or even the second, that the Justice Department took Visa to court over competition concerns.
But things are different this time. In the past, the DOJ’s beefs with Visa — and rival card network Mastercard, which also found itself in the government’s crosshairs — have been with rules for banks and merchants that have made it harder for merchants to avoid fees or for other networks to gain traction.
According to the Wall Street Journal, the government’s focus this time is on Plaid’s status as a “nascent” competitor. That term has also recently been applied to Instagram and Whatsapp, both of which were acquired by Facebook in 2012 and 2014, respectively. Some scholars and advocates say the government should take a harder line on such acquisitions.
The Justice Department presaged its lawsuit against Visa by filing suit against Visa and Bain & Co. in October to seek documents relevant to its investigation that Bain allegedly refused to turn over. The lawsuit was heavily redacted, but the materials sought related to a consulting project Bain did for Visa.
Plaid doesn’t currently compete directly with Visa by offering consumers and businesses a way to make payments. But Plaid does connect thousands of banks to apps like Venmo, which in turn allow consumers to transfer funds between their accounts using the ACH network and other, faster networks, like the so-called RTP network.
The details of individual consumers’ finances that Visa would be able to compile if it were to combine with Plaid is also noteworthy, said Linda Jeng, a visiting scholar at Georgetown University and the global head of policy at fintech startup Transparent Systems. She said that even though the DOJ relied on “traditional antitrust metrics” in its complaint, the lawsuit was a positive development.
Todd Baker, a senior fellow at Columbia University’s Richman Center for Business, Law & Public Policy, described the payments industry as a “Wild West, in a good way,” in terms of the breadth and variety of innovation happening. He said the new lawsuit has a good chance of succeeding.
“Visa’s long history as a bad actor in antitrust didn’t help in its negotiations with the DOJ, nor did its executives’ and advisors’ openness about the need to buy Plaid to forestall a major competitive threat,” he said in an email.
A Plaid spokesperson declined to comment. A Visa spokesperson pointed to a public statement in which the card network said it was not a competitor of Plaid and would fight the DOJ’s effort in court.
“Visa strongly disagrees with the Department of Justice, whose attempt to block Visa’s acquisition of Plaid is legally flawed and contradicted by the facts,” said Visa in a statement on Thursday. “This action reflects a lack of understanding of Plaid’s business and the highly competitive payments landscape in which Visa operates. 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.”
If the Justice Department wins in court, the merger could be scuttled
Stephane Dubois, the CEO of financial data provider Xignite, thinks that the fact that the DOJ sued suggests that it does probably have a solid legal basis for its allegations.
Unless Visa — which has been represented by powerhouse law firm Skadden in connection with the deal — can fight the DOJ’s lawsuit on a legal basis and argue successfully that the government’s argument is too speculative, that they’re not anticompetitive, he doesn’t think the acquisition will go through.
Otherwise, Visa would need to comply with conditions set by the DOJ — for example, lower fees on credit cards, or breaking up its business — to make itself non-competitive. But he’s not sure if Visa would be willing to do that.
Dubois said such a lawsuit could be a “cold shower” for fintechs that are considering mergers and acquisitions given the massive $200 million Plaid paid for its API competitor, Quovo, in January 2019, not to mention the $5.3 billion price tag of Visa’s acquisition of Plaid.
The DOJ’s lawsuit could fail and Visa’s acquisition could go through, but with diverging possible outcomes for Plaid and other fintechs
Dubois sees several possible outcomes playing out should the DOJ’s lawsuit fail. The acquisition would go through and Visa could continue to make Plaid available to fintechs, but in a way that it doesn’t “cannibalize” its own business — for example, by charging 3% fees to competitor services that Plaid enables.
It’s also possible that Visa shuts down Plaid after a successful acquisition, essentially squashing competition for the market, something Dubois called a “worst case scenario.”
Sally Hubbard, the director of enforcement strategy at the Open Markets Institute and an advocate of more assertive antitrust policy, raised as a comparison Google’s acquisition of ITA Software, a travel industry vendor, in 2010, which eventually led to the end of free access to ITA’s flight data.
“They should have never let that deal happen,” she said.
Google, for its part, is also facing an antitrust lawsuit brought by the federal government and several states over its dominance of web search and online advertising. Google, owned by Alphabet Inc., has called the case “deeply flawed” and said its products are simply better than the competition.
Ultimately, it’s not a sure bet that the DOJ will prevail. A recent effort by the department to go to court to stop airline tech vendor Sabre Corp.’s acquisition of a nascent competitor resulted in a defeat. The deal was abandoned after European regulators objected, however.
For now, though, fintechs aren’t fretting, according to Youssef Sneifer and Thomas Stromberg, attorneys at Perkins Coie who work on transactions in the sector. It’s common for startups and incumbents to collaborate in fintech, whether it’s through commercial partnerships or an outright acquisition, they wrote in a recent note to clients.
“I don’t think this specific situation needs to be generalized or looked at as more of an ominous sign for the fintech industry,” Sneifer said in an interview before the DOJ’s lawsuit was filed. “Nobody called, like, ‘oh my god, what do we do now?'”
Update: This story was updated with comments from Linda Jeng.
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