Antitrust Law Daily Justice Department seeks to stop Visa’s acquisition of Plaid
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Thursday, November 5, 2020

Justice Department seeks to stop Visa’s acquisition of Plaid

By Jody Coultas, J.D.

The agency argues that Visa is attempting to extinguish a future competitor and that the acquisition would result in less innovation in the online debt transaction market.

The Department of Justice Antitrust Division has filed an antitrust suit to stop Visa Inc.’s $5.3 billion acquisition of Plaid Inc., a financial technology firm currently developing a payments platform that would challenge Visa’s monopoly. The acquisition would unlawfully maintain Visa’s monopoly in violation of Section 2 of the Sherman Act and Section 7 of the Clayton Act, according to the complaint. "Visa already has a decisive market position through its online debit monopoly, and would unlawfully extend that advantage by acquiring Plaid," the agency alleges. Makan Delrahim, Assistant Attorney General in charge of the Antitrust Division, stated that "[i]f allowed to proceed, the acquisition would deprive American merchants and consumers of [an] innovative alternative to Visa and increase entry barriers for future innovators" (U.S. v. Visa, Inc., Case No. 3:20-cv-07810).

Visa controls approximately 70% of the online debit transactions market, earning over $4 billion from its debit business. Mastercard, Visa’s only longstanding rival in online debit services, has only a 25% share of the market and has neither gained significant share from Visa nor restrained Visa’s monopoly. The Antitrust Division argues that Mastercard’s participation in the online debit market has not translated into lower prices for consumers. Also, Visa has long-term contracts with many of the nation’s largest banks that restrict these banks’ ability to issue Mastercard debit cards. Visa also has also allegedly hamstrung smaller rivals by either erecting technical barriers or entering into restrictive agreements that prevent rivals from growing their share in online debit, or both.

San Francisco start-up Plaid, in which Visa made an initial investment in early 2019, provides a technology network that allows users to securely connect their financial accounts with third party software applications. Plaid has connections to 11,000 U.S. financial institutions and more than 200 million consumer bank accounts in the U.S. While Plaid’s existing technology does not currently compete directly with Visa, Plaid is planning to leverage that technology, combined with its existing relationships with banks and consumers, to facilitate transactions between consumers and merchants in competition with Visa. In January 2020, Visa announced its agreement to buy Plaid in a transaction worth $5.3 billion.

The complaint, filed in the federal district court San Francisco, alleges that the acquisition would eliminate the nascent but significant competitive threat Plaid poses and further entrench Visa’s monopoly in online debit. This would allegedly drastically lower costs for online debit transactions and leave both businesses and consumers with few alternatives to Visa’s prices. The Antitrust Division also alleges that the proposed acquisition would violate Section 7 of the Clayton Act, which was "designed to arrest the creation of monopolies ‘in their incipiency,’" and prohibits a monopolist from bolstering its monopoly through an acquisition that eliminates a nascent but significant competitor. An acquisition can violate Section 7 when "the relative size of the acquiring corporation ha[s] increased to such a point that its advantage over its competitors threaten[s] to be ‘decisive.’"

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 US debit business i[s] critical and we must always do what it takes to protect this business." Unless acquired, 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 US 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."

Bain & Company. Last week, the Justice Department filed an enforcement action against third-party Bain & Company, seeking to compel compliance with the department’s civil investigative demand (CID) as part of its investigation into the proposed acquisition. Bain, a consulting firm, allegedly withheld documents, asserted unsupported claims of privilege over the documents, and thereby stymied the Antitrust Division’s investigation of its client Visa (U.S. Bain & Company, Inc., Case 1:20-mc-91572-LTS).

In June 2020, the Justice Department issued a CID to Bain that required the company to respond to interrogatories and produce documents discussing Visa’s pricing strategy and competition with other debit card networks, which the Justice Department described as important to its analysis of the effects of Visa’s proposed acquisition. According to the petition, Bain refused to produce the documents and asserted a blanket privilege over almost all of them. Bain purportedly asserted claims of attorney-client and work product privilege over documents despite performing no legal services for Visa. The Justice Department is seeking to enforce the CID under the Antitrust Civil Process Act in support of its investigation of the proposed acquisition for the benefit of American consumers and competition.

Companies: Visa, Inc.; Bain & Company, Inc.; Plaid Inc.

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