American trustbusters force Visa to back off Plaid

IN EARLY 2019 an executive at Visa, a giant payments firm, sketched a picture of an island volcano. He scribbled the current capabilities of Plaid, a Silicon Valley fintech firm founded in 2012, in “the tip showing above the water”. The startup, which has developed a platform connecting consumer accounts at more than 11,000 banks to financial apps, was offering services like “bank connections”, “account validation” and “asset confirmation”. But he warned of the “massive opportunity” beneath the surface. Plaid could expand into fraud detection, making credit decisions and, scariest of all, payments infrastructure.

This opportunity for Plaid looked like a threat to Visa. Ten months later, in January 2020, Visa announced that it would acquire its putative rival for $5.3bn. This sum was more than 50 times the revenue Plaid earned in 2019 (though a modest lift for a company with a market capitalisation of over $460bn). Al Kelly, Visa’s boss, described the deal as an “insurance policy”.

These details—volcano sketch and all—were included in the complaint America’s Department of Justice filed in November, when it sued to block the deal. The acquisition, the DoJ said, would snuff out a competitor in the debit-card business, in which Visa has a market share of around 70% and profit margins nudging 90%. In 2019 Visa earned around $4bn in profits. On January 12th the DoJ announced that Visa had pulled out of the deal, rather than continue to trial, which was scheduled for June.

The trustbusters’ intervention bears some striking similarities to the antitrust suits that have been filed against Facebook. Two separate legal challenges, one mounted by a bipartisan coalition of attorneys-general in 46 states and another from the Federal Trade Commission (FTC), centre on its acquisitions. They alleged that the technology titan maintained its monopoly in personal social-networking by systematically buying up potential competitors—notably Instagram in 2012 and WhatsApp in 2014.

In its defence, Facebook said that the government “now wants a do-over”, which would, as the company has put it, send “a chilling warning to American business that no sale is ever final”. The FTC’s complaint fails to mention that the antitrust authorities cleared the Instagram and WhatsApp deals at the time.

The move to block the tie-up of Visa and Plaid implies a new trustbusting approach taking shape in America. Henceforth the authorities will probably try to nip Facebook-like arguments in the bud pre-emptively by stymieing attempts by powerful incumbents to swallow upstart competitors. Explosive stuff.

This article appeared in the Business section of the print edition under the headline “Visa-free travel”