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DOJ sues to block Visa's Plaid purchase; eurozone banks tighten up

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The Justice Department filed an antitrust lawsuit Thursday “that seeks to block Visa’s $5.3 billion deal to acquire Plaid Inc., a key player in the financial-technology space,” the Wall Street Journal reported. DOJ “alleges the deal would eliminate the nascent but significant competitive threat that Plaid poses to Visa in the online debit market. The acquisition would allow Visa to unlawfully maintain a monopoly in online debit, leading to higher prices, less innovation and higher entry barriers for online debit services, the department alleged.”

“The case comes as the department is placing more emphasis on antitrust scrutiny of the financial sector. Recent cases also show the department increasing its focus on protecting future competition, even in circumstances where two companies aren’t currently major head-to-head rivals.”

The suit “argues that the deal would deprive merchants of an ‘innovative alternative’ to big credit card companies and would dissuade new entrants to the payments market,” the Financial Times said. “The DOJ said Plaid was planning to build a ‘bank-linked payments network that would compete with Visa,’ describing the fintech as ‘uniquely positioned’ to use its established connections to ‘enter the payments market and disrupt Visa’s monopoly.’”

The agency described Visa as a “monopolist in online debit services” that has “extracted billions” from “American consumers and business owners who increasingly buy and sell online.”

The suit “underscores merchants’ growing discomfort with Visa’s expanding debit market share, which the coronavirus pandemic has only accelerated,” American Banker’s Kate Fitzgerald reports.

Wall Street Journal

Worry about tomorrow

European banks “are mostly upbeat about their performance in the third quarter despite the ravages of the coronavirus pandemic on the economy. But amid more positive signals Thursday were reminders of stiff long-term challenges facing the industry,” the Journal said.

“Banks are still adding to provisions to guard against loans going sour as some businesses struggle to meet their obligations, a problem worrying executives and regulators across the continent. The region’s lenders are also grappling with low interest rates, which are now expected to remain in place for longer as central banks try to reignite economies.” Banks are also “facing margin pressure as customer deposits—which have become a headache for banks since the European Central Bank started charging them to park excess liquidity—have risen and lending has slowed down.”

Financial Times

Staying in the game

“European banks need to do cross-border mergers in the next five years if they are to compete against rivals in the U.S. and China, the CEO of Intesa Sanpaolo, the eurozone’s second-largest bank by market capitalization, said. “Undoubtedly cross-border M&A is what the eurozone will need across the next five years if you look at the size of U.S. and Chinese competitors,” Carlo Messina told the FT. “But investors will get on board only if you can offer synergies on a cost level, so finding the right combinations [is not simple].”

Quotable

“If allowed to proceed, the acquisition would deprive American merchants and consumers of this innovative alternative to Visa and increase entry barriers for future innovators.” — Assistant U.S. Attorney General Makan Delrahim, the department’s antitrust chief, on the agency’s decision to block Visa’s planned purchase of Plaid.

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