Visa insists that the Department of Justice, in objecting to its proposed $5.3 billion purchase of Plaid, fundamentally misunderstands the changing role of data in the payments industry.
Visa filed a response to the DOJ’s antitrust case, stating that data aggregators like Plaid are essential partners for banks and payment networks as transactions move to digital, cloud-based platforms requiring efficient, secure methods of confirming consumers’ identities.
In singling out Visa’s proposed acquisition of Plaid as monopolistic while allowing other providers to team up with similar data aggregators, the Justice Department is attempting to make the payments playing field uneven, Visa contended in its Nov. 27 filing in U.S. District Court.
The Justice Department on Nov. 16 cleared Mastercard’s $825 million
Visa also counters the Justice Department’s theory that Visa acquired Plaid to eliminate a potential rival. Visa and Plaid operate in complementary spheres, where Plaid exclusively moves data, not money.
Plaid has no direct path to create its own payment service, Visa said in the filing, despite the Justice Department's assertion that Plaid is in a position to build its own payments service via its vast reach to banks through its role connecting consumers’ bank accounts to third-party services like Venmo.
Suspicions about Plaid’s motives in leveraging consumer banking data surfaced over the last year from banks including
“Plaid’s research and development efforts — consisting of a small number of pipeline products that Plaid began developing only months before the transaction discussions began — do not actually constitute a 'pay by bank' platform that would complete with Visa’s debit products,” Visa said in the filing.
Visa also claims the Justice Department has “gerrymandered” its assessment of the payments market to artificially inflate Visa’s market share and power.
According to Visa, the Justice Department bases its theory that buying Plaid would be anticompetitive because of Visa’s dominance in the online debit market. Visa notes in the filing that online debit payments are only one category of a broad range of payment types available to consumers making online purchases, including credit cards, PayPal, Apple Pay, Google Pay and ACH transfers.
Mastercard processed more than 3 trillion total debit transactions last year, and in recent years Mastercard has won numerous debit card portfolios Visa previously processed, underscoring robust ongoing competition among networks and other payment types, Visa argued.
Visa said the Justice Department’s case is entirely without merit, but notes that its proposed merger with Plaid would actually benefit consumers by integrating payment functionalities into Plaid’s APIs for more seamless access, including expanding Plaid’s reach to markets outside the U.S.
“Plaintiff’s narrative — that Visa is acquiring Plaid in order to crush a (purportedly) unique dangerous threat to a (supposed) monopoly — is nothing more than a patchwork of excerpted party documents and testimony taken out of context, stitched together with conclusory allegations where facts do not exist, and embellished with irrelevant and stale customer complaints unrelated to Plaid and this acquisition,” Visa said in its filing.
Plaid would be an attractive long-term investment for Visa, but failing to acquire it wouldn't have big strategic implications, said Sanjay Sakhrani, managing director with equities firm Keefe, Bruyette & Woods, in an October note to investors.
"But to the extent that Mastercard is able to go ahead with its pending acquisition of Finicity, it could represent a competitive disadvantage," Sakhrani added.
The way the DOJ assesses the online debit market gives Visa about 70% share versus Mastercard with 25% and the remainder divided among other providers.
"If you define a market narrowly enough you can always conjure an antitrust problem," said Eric Grover, analyst with Intrepid Ventures LLC.
The biggest flaw in the DOJ's antitrust argument is the fact that credit cards account for at least 50% of online payments, where Visa has many competitors, according to Grover.
"Even if credit cards weren't so important to e-commerce, No. 2 debit network Mastercard is a formidable competitor to Visa, in the U.S. and globally," Grover said.
The timing of proposed court dates in the Justice Department's case against Visa buying Plaid also raises concerns for Visa’s ability to maintain momentum in the fast-evolving digital payments industry.
Visa originally floated a proposed date for the Justice Department trial on the matter for April 2021, but the agency responded with a proposed date of September 2021 with U.S. District
Judge Jeffrey Steven White.
A case management conference is set for Dec. 18, 2020.
