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Monday, January 18, 2021

Visa, Plaid combo called off

Visa Inc. scuttled plans to acquire fintech Plaid under pressure from the U.S. Department of Justice. The DOJ is characterizing the move as a win for consumers and businesses. Not surprisingly, Visa and Plaid put a different spin on the decision.

“We believe the combination of Visa with Plaid would have delivered significant benefits,” said Al Kelly, Visa Chairman and CEO. “However, 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.”

Zach Perrett, CEO and co-founder of Plaid, offered a similar assessment, adding, “[W]e have decided to work with Visa as an investor and partner so we can fully focus on building the infrastructure to support fintech.”

DOJ says Visa is on line debit ‘monopolist’

Plaid is a fintech used by popular financial apps like Venmo and Square Cash to connect users to their bank accounts. Visa was prepared to pay $5.3 billion for Plaid, until DOJ filed a civil anti-trust suit to stop the combination in November 2020. That lawsuit was scheduled to be presented to a U.S. District Court in California in June.

The DOJ, in its complaint, alleged that Visa is “monopolist” in online debit, and that Plaid is developing a competitive payments platform. The end result: “the transaction would have enabled Visa to eliminate this competitive threat to its’ online debit business before Plaid had a chance to succeed, thereby enhancing or maintaining is monopoly,” DOJ said in a statement.

“Now that Visa has abandoned its anticompetitive merger, Plaid and other future fintech innovators are free to develop potential alternatives to Visa’s online debit services,” said Assistant Attorney General Makan Delrahin.

The DOJ move comes as Visa and Mastercard, and large debit card issuers, face allegations that PIN debit networks (like Shazam and NYCE) and merchants aren’t getting a fair shake when it comes to online debit card payments. The Durbin Amendment, which set the stage for federal caps on debit card interchange, also requires that merchants be able to choose from at least two unaffiliated debit card networks for routing transaction. Since most online merchants can’t accommodate PIN entry, the only option left in PINless debit. But PINless debit must be enabled by card issuers, and not all debit card issuers have enabled the functionality.

Sen. Richard Durbin, the Illinois Democrat who authored the Durbin Amendment to the 2010 Dodd-
Frank Act, last summer asked the Federal Reserve Board (which wrote the regulations that implement the Durbin Amendment) to investigate these allegations. In a letter to Fed Chairman Jerome Powell, Durbin said the Fed should consider intervening “to prevent what appears to be the anticompetitive practice of major debit card issuers refusing to enable PINless debit functionality on their cards.”

Fintechs getting too big?

Sameer Gulati, president and COO at payment solutions company Platiq, said the threat of antitrust challenges looms large over fintech combinations and they continue to grow and challenge incumbents. “Private capital is more abundant than ever before, which is allowing fintechs (and other companies) to stay private longer, amassing large customer bases resulting in antitrust complications when they finally exit,” he said.

Plaid, for example, has seen its customer base expand by more than 60 percent in the past year and has added hundreds of banks to its platform, according to Perret.

Gulati also pointed to “deep product expansion” on the part of fintechs “further increasing the likelihood of antitrust issues.” For example, he noted, Credit Karma was forced to sell off its tax preparation business to Square last year after the DOJ objected to Intuit’s acquisition of Credit Karma on anti-trust grounds. Credit Karma, an online free credit monitoring service, offered clients free access to online tax preparation in competition with Intuit’s Turbo Tax service.

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