In January 2020, Visa announced it was acquiring Plaid for $5.3 billion. Perhaps due to the magnitude of the transaction, or maybe because Visa was acquiring a well-known and advanced technology company, the statement was accompanied by much fanfare.
Before long, however, the U.S. Department of Justice started scrutinizing the transaction, leading to the filing of an antitrust lawsuit to prevent it.
This guide will explain Plaid and explain why the Department of Justice is trying to block the deal.
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Plaid provides the technical integrations for a enormous assortment of apps to communicate with financial institutions. It’s an enabler of available banking via APIs. Consumers can make and receive payments, view account balances and transaction history, and much more. Using Plaid, programmers can quickly and safely connect their apps with financial institutions, which used to take weeks, sometimes years.
If you have paid a bill from your bank account through an app or site, Plaid’s technology was probably involved. Venmo, Stripe, TransferWise, Robinhood, and Coinbase are some of the reported 11,000 financial institutions (with 200 million customer accounts) that connect to Plaid.
Plaid was set in 2013. It’s procured about $300 million in venture capital. Interestingly, both Visa and Mastercard were early but quiet investors. Along with the $5.3 billion price it provided for the company — just double Plaid’s evaluation at the time — suggests Visa’s powerful motivation.
Plaid has access to a huge quantity of consumer data. According to the Department of Justice,”Plaid is now the major financial data aggregation company in america.” It’s reasonable to call Plaid the Google of fiscal data.
Soon after the January announcement, Visa CEO Al Kelly said the deal would”position Visa for another decade. It helps expand the provider’s own total addressable market and relationships with fintech providers, in addition to increase Plaid’s growth.”
To put it differently, the intent was to increase Visa’s presence in the financial technology industry and to increase profits.
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The Department of Justice considers the outcome would restrict competition. What follows is a summary of the DOJ’s case. No court date has been set, incidentally.
Visa is currently a monopoly. The DOJ claims that Visa is now a monopoly in online debit-payment processing. Plaid, according to the DOJ, has developed technologies that would challenge this debit monopoly.
Plaid was intending to use its technologies with its 11,000 banking relations to construct a”bank-linked payment system that would compete with Visa’s payment debit and processing enterprise.”
According to the Justice Department:
- “Plaid’s cash movement platform would enable consumers to pay merchants directly from their bank accounts with bank credentials as opposed to a debit card.”
- “Plaid’s established connections and technology uniquely positions it to enter the payments market and interrupt Visa’s monopoly.”
Visa is restricting competition. Visa is trying to acquire Plaid to stifle a burgeoning competitor that threatens the billions of dollars in fees that Visa charges merchants and customers to process payments.
Visa is protecting debit-card earnings. Visa believes that the acquisition as an”insurance policy” to protect its own debit card company. Indeed, based on internal communications, Visa’s CEO stated that if it didn’t acquire Plaid,”Visa could be made to accept lower margins or never have a competitive offering.”
Visa’s brief statement in reaction to the lawsuit said, in part,”Plaid isn’t a payments company. Visa’s company faces intense competition from many different players — but Plaid is not among them.”
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