Visa’s Plaid Acquisition Thwarted by Regulatory Snags

The leadership team at the data-driven fintech Plaid didn’t like the holding pattern they were stuck in waiting for regulators to approve Visa’s pending $5.3 billion acquisitions of the company. So they’ve decided to pack it in and forge ahead as an independent company.

In a blog post earlier this week, Plaid Co-founder Zack Perret said the time the deal was taking represented, in effect, a giant opportunity cost for the eight-year-old San Francisco-based startup.

“Unfortunately, the pace of a multi-year regulatory review is not compatible with the fast-moving realities of a startup. And delaying close another year or more is not in the best interest of our customers, the financial system, or consumers themselves,” Perret wrote.

On its website, Plaid describes itself in almost missionary terms. An example.

“Plaid is focused on democratizing financial services through technology. We build beautiful consumer experiences, developer-friendly infrastructure, and intelligent tools that give everyone the ability to create amazing products that solve big problems.”

So what does this mean, exactly? Plaid essentially provides, through APIs, the infrastructure that allows consumer fintech platforms doing debit transactions to operate. Plaid’s customers include the likes of Venmo, Acorns, and Betterment. And they provide the data insights that flow from all the consumer data that flows through Plaid. Again from the Plaid website.

“We started out by building the technical infrastructure APIs that connect consumers, traditional financial institutions, and developers. Today, we add key insights to the data access we provide with our suite of analytics products.”

DOJ: Plaid-Visa ‘Must Be Stopped’

The Visa acquisition came out in January 2020. And in November, the Department of Justice filed suit to block the acquisition. The DOJ surmised that Visa was buying Plaid to take a competitor off the field. And, more damningly, to kill a burgeoning (and threatening) industry in the cradle. If you can’t beat the disruptor, buy them. Unless of course, the DOJ cries foul.

Here is what the DOJ said about the deal in its filing.

“By acquiring Plaid, Visa would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.”

Further, the DOJ argued that the deal would violate Section 2 of the Sherman Act.  And thus, the DOJ declared, the deal “must be stopped.” So it seems they were pretty serious about this.

Plaid founders William Hockey and Zack Perret Source: Plaid
Visa Contended Plaid Not a Competitor

Visa has until this week at least vigorously challenged the suit. It argued at the time of the DOJ suit that the deal was good for consumers. And it claimed the DOJ’s legal and business reasoning was flawed. Here is some of Visa’s response at the time.

“This action reflects a lack of understanding of Plaid’s business and the highly competitive payments landscape in which Visa operates,” the statement read. “The combination of Visa and Plaid will deliver substantial benefits for consumers seeking access to a broader range of financial-related services, and Visa intends to defend the transaction vigorously.

“As we explained to the DOJ, Plaid is not a payments company. Visa’s business faces intense competition from a variety of players – but Plaid is not one of them. Plaid is a data network that enables individuals to connect their financial accounts to the apps and services they use to manage their financial lives, and its capabilities complement Visa’s. Together, Visa and Plaid will deliver better digital experiences and more choice for consumers in managing their money and financial data. Visa is confident that this transaction is good for consumers and good for competition.”

Cutting their Losses

Clearly, the Plaid team anticipated no good outcome from the legal case. Given the frothiness of the fintech market right now, it may well make more sense to pursue their goals independently. Seems like a better option than waiting for the Visa billions that may never materialize.

“The industry has been forever changed in the past twelve months, as consumers have turned to fintech to help manage their financial lives at an accelerating pace. As a company, and as an industry, we have an urgent responsibility to stay focused on delivering the products and services on which consumers rely,” Perret wrote in the post.

The Plaid blog post points out that more than 4,000 companies started using Plaid in the past year. Translation. Who needs Visa?

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