Visa says it will put the brakes on its deal with Plaid to forgo continued litigation.
The Department of Justice (DOJ) filed an antitrust lawsuit attempting to block Visa Inc.’s impending acquisition of Plaid, an electronic payment processing technology company, last November. Now, Visa has officially announced its plans to halt the $5.3 billion deal. Plaid is a San Francisco-based company that phishes users’ bank login details by creating mock account login pages in order to allow transactions to go through. It would have provided Visa customers with the ability to make secure payments directly from their financial accounts without having to use debit card transfers. These cards are mostly controlled by either Visa or Mastercard.
Visa is the largest payment processing venture in the world and DOJ officials felt the deal between the two would have given it too much power over consumer purchases of goods and services. The agency’s lawsuit contended the partnership “would allow Visa to maintain its monopoly position and supra-competitive prices in online debit.” It would have put Mastercard, in particular, at a disadvantage and would have further blocked the entry of any market newcomers.
“American consumers and business owners increasingly buy and sell goods and services online, and Visa – a monopolist in online debit services – has extracted billions of dollars from those transactions,” said Assistant Attorney General Makan Delrahim of the DOJ’s Antitrust Division at the time the lawsuit was filed. “Now, Visa is attempting to acquire Plaid, a nascent competitor developing a disruptive, lower-cost option for online debit payments. 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.”
The complaint alleged Visa’s CEO, Al Kelly, viewed the acquisition as an “insurance policy to protect against a threat to our important U.S. debit business.” It would come at a transitional time in the financial sector with a substantial uptick in the use of international cryptocurrency.
The lawsuit states, “Visa’s CEO justified the deal to Visa’s Board of Directors as a strategic, not financial move, and noted that in part because our U.S. debit business is critical, and we must always do what it takes to protect this business. Unless it moved forward with the plan, “Visa feared that Plaid on their own or owned by a competitor [was] going to create some threat with a potential downside risk of $300-500M in our U.S. debit business by 2024. 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.”
In its latest announcement, Visa maintained it still believed the partnership would have been beneficial to its customers and the market – particularly “financial institutions and developers.” However, Kelly said the company wishes to resolve the matter in order to avoid continued litigation.
“It has been a full year since we first announced our intent to acquire Plaid, and protracted and complex litigation will likely take substantial time to fully resolve,” he said in a statement.