- The Department of Justice filed an antitrust lawsuit against Visa, calling into question its $5.3 billion acquisition of Plaid.
- In the complaint, the DOJ says that Plaid had been building a payments service that would compete directly with Visa’s massive debit card business.
- The pay-by-bank service would enable merchants to accept payments from consumers’ bank accounts without needing to use a debit card.
- According to the suit, Visa earned over $4 billion from its debit business in 2019, including roughly $2 billion from online debit.
- Plaid declined to comment.
- Visa said in a statement that Plaid is not a payments company, and that the DOJ’s attempt to block the deal is “legally flawed.” It plans to defend the acquisition.
- Got a tip? Contact this reporter via email at sbalogh@businessinsider.com, Signal (801-824-5318), or direct message on Twitter @shannen_balogh.
- Visit Business Insider’s homepage for more stories.
The Department of Justice is alleging Visa’s motivation for acquiring fintech Plaid stems from a desire to limit the startup’s competitive threat to its $4 billion debit business.
Plaid, the data aggregator that links third-party apps with bank accounts, has been building a new payments product that would directly compete with Visa, according to a complaint filed Thursday by the Department of Justice.
The suit aims to block Visa’s $5.3 billion acquisition of Plaid, which was first announced in January.
The card network has remained adamant that Plaid does not directly compete with Visa. Instead, the two companies offer complimentary services.
Thursday’s suit, however, alleges that Plaid is in the midst of working on a product that “would be a substitute for Visa’s online debit services.”
“Visa is a monopolist in online debit transactions, extracting billions of dollars in fees annually from merchants and consumers,” the DOJ said in the complaint.
According to the suit, Visa earned over $4 billion from its debit business in 2019, including roughly $2 billion from online debit, where a Plaid’s new payments offering would compete with the card giant.
“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,” the DOJ added.
According to the DOJ suit, Visa learned about Plaid’s plans to launch a pay-by-bank service after Visa invested in the data aggregator in 2019. Pay-by-bank would enable merchants to accept payments directly from consumers’ bank accounts, sidestepping the need to use debit cards online — a crucial part of Visa’s revenue.
“Through that investment, Visa executives learned more about Plaid and came to understand that Plaid posed a significant threat to Visa’s debit business,” the DOJ said.
A spokesperson for Plaid declined to comment.
A spokesperson for Visa directed Business Insider to its public statement, in which it states the DOJ’s suit is “legally flawed”, and “reflects a lack of understanding of Plaid’s business.”
“As we explained to the DOJ, Plaid is not a payments company. Visa’s business faces intense competition from a variety of players – but Plaid is not one of them,” Visa said in the statement. “Plaid is a data network that enables individuals to connect their financial accounts to the apps and services they use to manage their financial lives, and its capabilities complement Visa’s.”
Since its founding in 2013, Plaid has become a giant in the data-sharing ecosystem. But it doesn’t currently offer any payments or money movement services. Currently, the company has two job openings related to the payments space (one in product, and one in risk).
According to the listings, the product manager would be responsible for “building the next generation of Plaid products that make payments better,” and the risk analyst would be “partnering with the Product team to build-out and operationalize compliance workflows for new products related to money movement.”
Pay-by-bank is a method of payment that could threaten Visa’s debit business
The DOJ’s antitrust claims focus on a form of money movement called pay-by-bank.
“For the first time in many years, a new type of payments service is poised to take share away from Visa’s online debit business,” the DOJ said in the suit.
Pay-by-bank is a new way to debit a bank account without using a debit card. Through pay-by-bank, consumers’ login credentials can be used to verify users and facilitate payments to merchants directly from bank accounts.
Visa relies on the usage of debit and credit cards to make money via transaction fees called interchange. Cutting a debit card out of the transaction means Visa loses out on revenue.
Pay-by-bank transactions are typically less expensive to process than a debit-card payment, the DOJ noted. Banks typically charge merchants flat rates (from $0.02 to $0.25) for direct-debit transactions, known as ACH.
For a debit card payment, Visa charges merchants around $0.22 plus a percentage of the total transaction. To process transactions on Visa’s network, merchants (and, indirectly, consumers) pay a total of more than $6 billion in both network and interchange fees.
“By harnessing these savings using its best-in-class technology and existing relationships with banks and consumers, Plaid stands to save merchants and consumers hundreds of millions of dollars per year in debit fees,” the DOJ said.
And given Plaid’s scale, it’s currently well positioned to do just that. Plaid currently supports 80% of the largest fintech apps in the US, and has connections to 11,000 US financial institutions.
“Plaid’s extensive existing connections with banks and consumers gives Plaid a substantial competitive advantage that cannot be easily replicated by other firms,” the DOJ said.
Plaid has historically operated behind the scenes, working primarily with fintechs and banks. But it’s increasingly building out consumer-facing products. In February, Zach Perret, Plaid’s CEO and cofounder, spoke to Business Insider about working with big banks to help customers control access to their data.
Plaid is currently running a beta of Plaid Portal, a consumer-facing dashboard where users can view and manage all the data links running through Plaid, from both banks and third-party apps.
Got a tip? Contact this reporter via email at sbalogh@businessinsider.com, Signal (801-824-5318), or direct message on Twitter @shannen_balogh.
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