The US federal government has filed a lawsuit blocking Visa Inc.’s (NYSE:V) acquisition of fintech company Plaid, stating that the $5.3 billion acquisition is against antitrust laws. According to the Justice Department, Visa is a monopolist in online debit transactions, and the merger will do away with an emerging competitive threat to its monopoly.
DOJ says the acquisition of Plaid by Visa violates antitrust rules
At the beginning of this year, Visa announced that it reached an agreement for the acquisition of the privately held startup. The deal aimed at enhancing the payments behemoth’s access to the fast-growing fintech sector. Plaid is a software provider that develops digital infrastructure that links financial data from bank accounts of people to apps they use in managing their finances such as Coinbase, Expensify and Venmo.
The DOJ noted in the lawsuit that Plaid’s new service poses a competitive threat to Visa’s business, and thus the acquisition is an infringement of antitrust rules. The lawsuit alleges that the acquisition of Plaid will eliminate the growing competitive threat that would otherwise result in significant cost saving and additional innovative debt services for consumers and merchants. The complaint states that the acquisition market an unprecedented revenue multiple of more than 50X, and it will be the second-largest acquisition in the payment company’s history.
Visa to challenge the lawsuit
In a statement, Visa said that it strongly disagrees with the suit stating that it shows a lack of understanding of the fintech startup’s business and the competitive payments spaces that Visa operates. Visa has stated that it will defend the transaction strongly because the acquisition will result in considerable benefits for consumers.
The DOJ’s suit indicated that Visa’s CEO had termed the acquisition of an insurance policy that would neutralize the competitive threat to their essential debit operations in the US. The complaint said that currently, Visa controls 70% of the online debit services market with MasterCard Inc. (NYSE:MA) controlling 25%. Plaid is a threat to Visa’s monopoly since it has been developing a new solution that will be an alternative to Visa’s online debit business.