Unlike Visa and Mastercard, Plaid is not just another credit and debit card company largely beholden to the big banks. It uses modern technology, in a sector that has been slow to adopt it, to create a new payments paradigm. It likely has no plans to issue cards or use the same rusty (and overpriced) rails that connect banks to networks like Visa and Mastercard.
If left independent, Plaid will, we hope, compete aggressively for merchants, not just the same big banks that drive Visa and Mastercard. Indeed, one of the most telling revelations in the DoJ’s complaint is the document showing that Visa wanted to keep Plaid out of the “wrong hands” for the “mutual” benefit of both Visa and its “largest issuing bank clients” who both have a “lot to lose” from threats to “card-based payments.”
While some pro-card industry advocates have pointed to the United Kingdom’s recent approval of the Plaid acquisition, Mark Falcon, director at Zephyre and a former UL payments regulator, comments: “The UK authorities’ approval of the merger is that they (the UK Competition and Markets Authority) only looked narrowly at the UK market impact, while not considering the U.S, or other markets outside the UK. In reality, Visa is a monopolist of the debit market in most countries in the world, including the U.S. and UK. Visa is also a monopolist of the highly lucrative cross-border card payments market (e.g. for Americans travelling overseas and for visitors to the U.S., when we’re allowed to travel again…) Moreover, it is Visa’s global monopoly position that further strengthens its U.S. market position.”
Falcon continues: “For the same reasons as the DoJ finds for the U.S., Plaid is also uniquely positioned to compete with Visa globally – owing to Plaid’s combination of API technology, bank connectivity, merchant relationships, substantial financial backing, and U.S. home market. The British authorities were wrong therefore only to look at the merger from a British perspective only.”
In addition, it is not uncommon for foreign competition authorities to defer action when they know those better positioned to review the transaction are planning to do so, and it is likely the UK and U.S. regulators discussed the issue.
Several years ago, Senator Durbin, speaking before Congress in defense of his amendment to the Dodd-Frank Financial Reform Bill, condemned the practices of “card networks like Visa [which] have fixed the interchange fee rates that each issuing bank receives when one of their debit cards is swiped.” He went on the explain, “It’s easy to see why the banks and card networks set up this interchange scheme. It is lucrative for the banks, who receive tens of billion per year in high fees, that are not tempered by competitive market forces.”
He concluded with his most important point: “The system is unfair to consumers, who pay tens of billions per year in fees passed on to them in the form of higher retail prices. And it is unfair to merchants, who cannot negotiate interchange fees and who can no longer refuse to accept the dominant card networks.”
More than 10 years have passed since the passage of Dodd-Frank and the Durbin Amendment. Unfortunately, many of the reforms required by the amendment have not been realized. Merchants uniformly complain the fees set by the Federal Reserve under Regulation II are far too high and inconsistent with the language of the law. Furthermore, the Law’s “Prohibitions Against Exclusivity Arrangements” have not been enforced, particularly in the growing area of online payments, where the big banks have failed to enable multiple-network payments routing as required by law. The direct consequence of this lack of enforcement has led to higher prices for consumers.
Despite the Durbin Amendment, Visa continues to maintain an 88% operating margin on debit transactions.One can only hope that the DoJ is just beginning to take notice of a monopolistic card industry that preys on consumers as well as merchants, resulting in inflated prices consumers pay every day for goods and services while the big banks and the big networks rake in outrageous profits.