COMMENTARY: The DoJ Is Right in Suing To Stop Visa’s Deal For Plaid. Here’s Why (Part I)

Finally!

No doubt, merchants throughout the country are applauding the Justice Department’s suit against Visa to stop its planned acquisition of Plaid, a potential competitor. For far too long, we’ve witnessed the growth of Visa’s dominance of the debit card business, which has come at a huge cost to America’s merchants and consumers. 

The DoJ’s complaint includes many compelling statements that make clear Visa’s intent to eliminate Plaid as a potential competitor. These include the recent statement from Visa’s chief executive that Visa wanted to buy Plaid as an “insurance policy” to help safeguard Visa’s market share by eliminating a “threat to [Visa’s] important US debit business.” 

The DoJ’s attorneys cited “Visa’s 70% share of the debit market and rival Mastercard’s inability to gain significant market share” or “restrain Visa’s monopoly.” They went on to explain why they chose this moment to act against Visa: “Visa rarely faces any significant threats to its online debit monopoly. Plaid is such a threat.” They added that, for antitrust reasons, the $5.3-billion acquisition “must be stopped.”

According to one publication, TechCrunch, “the revelation that the DoJ was taking a closer look at the Plaid acquisition came from a petition filed in the U.S. Court for the District of Massachusetts to compel Bain, the consulting firm that worked on Visa’s bid for Plaid, to comply with the agency’s civil investigative demand (CID).” 

That fight for documents is now part of the DoJ’s lawsuit in San Francisco. Those of us in the merchant community anxiously await Bain’s disclosure of the details of the proposed purchase as well as the firm’s heretofore private recommendations to Visa.  But even without Bain’s documents, there is already much damning information directly from Visa in the DoJ complaint about the real reason for the deal: protecting Visa’s dominant 70% share.

Significantly, the DoJ expressly recognizes that Visa’s proposed acquisition poses a threat to both merchants and consumers. “Monopolists cannot have free reign to squash nascent, albeit unproven, competitors at will,” the complaint says. The filing goes on to emphasize the point: “As a result, both merchants and consumers would be deprived of competition that would drastically lower costs for online transactions, leaving them with few alternatives to Visa’s monopoly prices.”

A heading in the filing also emphasizes that “Visa Has a History of Impeding Entry and Expansion into Online Debit Services.” We agree, and we note that this is the subject of the long-running merchant lawsuit that is expected to be decided in the coming year. We also suggest the DOJ focus not only on acquisitions of potential competitors, but also on several other actions by Visa, EMVCo, and large commercial banks that have led to Visa’s dominance of the debit business. 

While the DoJ focused primarily on Visa’s “history of protecting its monopoly in online debit by entering into contracts that limit these banks’ ability to issue debit cards from Visa competitors,” many payments experts would express additional concerns. Their concerns include the development and weaponization of exclusive technology such as EMV and tokenization by EMVCo (of which Visa is a member). These actions have also proven to be significant barriers to competition from domestic debit networks for online payments. 

In particular, the imposition of EMV in the U.S. market without a PIN or another form of two-factor authentication has led to a huge increase in payments fraud at a significant cost to merchants and ultimately to consumers. Merchants will be pleased that the Justice Department decided to act now to stop this particular acquisition since Plaid is a much different type of company than either Visa or Mastercard.  Indeed, Plaid is a player that could bring some real competition to the payments market. Most of the largest domestic and global banks have significant business relationships with both Visa and Mastercard. Together, the two card brands control nearly 100% of the fast-growing online debit business.

(Look for Part II on Monday, Nov. 30)