This year, the U.S. Department of Justice (DOJ) has been scrutinising the financial-technology sector with a strict antitrust lens as it cracks down on deals that could limit nascent competition in the payments space. The latest deal to fall under threat is Visa Inc.’s proposed $5.4 billion acquisition of the venture-backed Plaid, a key player in financial technology.
A source close to the matter has shared that the DOJ has spent this past year assessing how this deal might affect the wider market for new financial services provided by start-ups. The DOJ could sue to block Visa’s purchase of Plaid altogether to stave off the threat of the big players in payments blocking competition and keeping consumers from valuable fintech services that offer alternatives to the typical card processing fees. Speaking on this, Makan Delrahim, the Department’s top antitrust official announced that the government needed to “take a fresh look” at how new technologies are changing competitive dynamics in the financial services industry.
San Francisco-based start-up Plaid is known for its software that allows banks and fintechs to easily plug into consumers’ various financial accounts. Today, it provides connections between over 11,000 banks and financial services companies with over 200 million consumer accounts. Notably, companies linked to Plaid, with users’ permission, are able to aggregate spending data, see balances, and have access to other personal financial information. Of note to Visa, is Plaid’s standing as a platform that could one day enable consumers to make purchases without the requirement for debit or credit cards.
Initially, Visa announced the acquisition in January amid a flurry of big fintech acquisitions by major payments companies. Visa was reported to have handed $2.4 trillion of credit, debit, and prepaid-card transactions in the first half of 2020. The DOJ announced its intention to look closer at the deal via a petition filed in the U.S. Court for the District of Massachusetts to compel Bain, the consulting firm that worked on Visa’s bid for Plaid, to comply with the agency’s civil investigative demand.
Bain was alleged to have withheld requested documents by insisting that it had privilege over the documents, which stalled the DOJ’s investigation. The department has stated Bain “has tried to stymie” the investigation sparking consideration into whether the Plaid acquisition will “allow Visa—the dominant provider of debit services in the United States—to create or maintain a monopoly.”
Visa’s intended acquisition of Plaid isn’t the only big fintech purchase that is being scrutinized by the DOJ. Federal regulators are also looking into Mastercard’s $1 billion bid for unicorn Finicity, and Intuit’s $7 billion bid for Credit Karma.
While the DOJ has prepared potential litigation with a line-up of witnesses for trial, no final decision has been made as of yet. Representatives for Visa, Bain, and Plaid have declined to comment at this time.