SAN FRANCISCO (CBS SF/AP) — The Department of Justice filed a lawsuit Thursday against credit card company Visa Inc. to block the company’s purchase of financial technology startup Plaid, calling it a monopolistic takeover of a potential competitor.
The lawsuit, filed in the Northern District of California, seeks to halt the $5.3 billion deal, which would have been the second-largest acquisition in the company’s history, second only to Visa’s buyout of Visa Europe a few years ago.READ MORE: Twitter To Pay $809 Million To Settle Class Action Lawsuit Brought By Investors
Plaid provides the infrastructure to allow consumers and businesses to pay directly from their bank account. Services like Venmo, SoFi, Stripe and TransferWise all use Plaid as a way for consumers to send money from their bank accounts to another party without having to use the debit card infrastructure that’s largely controlled by Visa and its competitor Mastercard.
Visa earns a small fee from every transaction that is run on its network. The fee varies depending on the card, but debit transactions tend to be cheaper to run on Visa’s network than credit card transactions. But those tens of billions of debit card transactions add up, bringing in billions of dollars in revenue for Visa every quarter.
By providing an infrastructure that would bypass the traditional debit card networks, Plaid presented a competitive threat to Visa, the Department of Justice argued in its lawsuit, and without it being an independent company, consumers and businesses would in turn pay higher prices to take Visa debit cards.READ MORE: KPIX Original Report: SF Mission Bay Sidewalks Sinking But City Won't Fix 'Private Property'
“Visa’s proposed acquisition of Plaid would forestall this competition, allowing Visa to maintain its monopoly position and supracompetitive prices in online debit,” the lawsuit said.
In a statement, Visa said it strongly disagrees with the DOJ’s lawsuit, arguing that Plaid is a payment infrastructure company, not a payment network like Visa.
“This action reflects a lack of understanding of Plaid’s business and the highly competitive payments landscape in which Visa operates,” the company said in a statement.MORE NEWS: Motorcyclist Airlifted To Hospital After Crash Near Bethel Island
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