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Visa’s $5 billion bid for fintech darling Plaid sparks lawsuit by Justice Department

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By Emily Bary

The Department of Justice filed suit Thursday to block Visa Inc.’s planned $5.3 billion acquisition of Plaid Inc., a move that could signal a tougher road ahead for the payments giant as it tries to expand into new-school avenues of fintech.

In its complaint, the Justice Department alleges that Visa /zigman2/quotes/203660239/composite V +1.94% is a “monopolist” in online debit and is seeking to eliminate the “nascent competitive threat” brought on by Plaid, which allows consumers to connect their bank accounts to hot fintech platforms like investment platform Acorns and PayPal Holdings Inc.’s Venmo.

The suit filed in U.S. federal court for California’s Northern District alleges that Plaid has a valuable network of connections to banks and consumer accounts that “position Plaid to overcome the entry barriers that others face in attempting to provide online debit services.”

Visa asserted in a statement that the Justice Department’s “attempt to block Visa’s acquisition of Plaid is legally flawed and contradicted by the facts.” The company said that it doesn’t face competition from Plaid, whose capabilities “complement Visa’s.”

“Visa is confident that this transaction is good for consumers and good for competition,” the company continued.

Barclays analyst Ramsey El-Assal wrote that the Justice Department suit is a bit surprising given that the U.K.’s Competition and Markets Authority recently offered approval for the deal and suggested that Visa’s move into open banking—the idea of enabling greater access to bank and other financial data—might be a tougher road than originally expected.

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“Initially, given Plaid’s model deploys screen-scraping to accessing consumer bank account data, we had presumed regulators might embrace [Visa] bringing a more ‘permissioned’ approach to open banking,” he wrote in a note to clients. “At the same time, our prior checks indicated that many regulators are motivated to ensure that open banking and fintech remain competitive, and thus may be wary of V expanding its reach into new, more vibrant parts of the financial services industry.”

El-Assal asked whether the move is “a sign of a tougher regulatory environment to come” given a “more strident” antitrust tone from both parties recently.

“We believe investors may be underestimating the degree to which global regulators may be working to constrain V (as well as [Mastercard /zigman2/quotes/207581792/composite MA +2.16% ] potentially) from leveraging their market dominance in bank card payments into other non-carded transaction flows (eg, European Commission concern over market shares issues in MA/Nets acquisition, etc),” he wrote, though he also noted that his near- and long-term estimates don’t bake in much opportunity from open banking anyway.

“We see today’s news instead [as] potentially signaling the path forward is less certain than previously anticipated,” he concluded.

Visa shares are up 2.4% in midday trading Thursday. The stock has gained 5.6% so far this year as the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.90% has slipped 0.7%.

$ 226.28
+4.30 +1.94%
Volume: 8.70M
April 15, 2021 4:00p
P/E Ratio
Dividend Yield
Market Cap
$474.43 billion
Rev. per Employee
$ 386.49
+8.17 +2.16%
Volume: 2.94M
April 15, 2021 4:00p
P/E Ratio
Dividend Yield
Market Cap
$375.81 billion
Rev. per Employee
US : Dow Jones Global
+305.10 +0.90%
Volume: 321.83M
April 15, 2021 5:07p

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