Visa acquired Plaid in early 2020 for 5.3 billion dollars.
The Ministry of Justice could take legal action to block the acquisition.
The deal could potentially harm competition in the financial and banking sectors.
The billion-dollar takeover of Plaid Inc. by credit card giant Visa Inc. (NYSE: V) suffered a major setback on Tuesday after sources told the Wall Street Journal that the U.S. Department of Justice could take legal action to block the deal.
Details of the transaction
Visa reached an agreement in January 2020 to acquire the Fintech company Plaid for $5.3 billion. Plaid is a relatively young software company that makes it easier for financial technology companies to conduct transactions with their customers’ bank accounts.
Based in San Francisco, Plaid facilitates connections between more than 11,000 financial services companies and 200 million consumers, according to the WSJ. Some experts predict that the company will be able to eventually enable consumers to make purchases without a debit or credit card provider.
Companies like Plaid are particularly attractive to merchants who want solutions that avoid the Visa swipe fees.
The WSJ noted at the time of the deal that Plaid is one of the few of its kind that offers apps access to financial accounts. The acquisition comes at a time when consumers are showing a willingness to avoid large legacy banks and credit companies in favor of millennium-friendly financial services apps.
Plaid does not operate a payment network, although its software can determine how much money is in a consumer’s bank account. Ultimately, access to this information could lead to the creation of an entirely new payment system.
The DOJ steps in
The DOJ is about to finalize a decision on whether to take legal action to block the multi-billion dollar acquisition of Visa. The regulator is concerned that the competitive environment in the payment sector will suffer under the Visa umbrella.
Although no decision has yet been made, the DOJ is currently preparing for a possible legal action, including the summoning of witnesses. The authority has also worked with groups of merchants and other experts.
The DOJ’s involvement follows immediately after a restructuring in which the top anti-trust official, Makan Delrahim, made changes in the assessment of competition concerns in the financial sector, according to the WSJ. Delrahim was quoted as saying that the authority needed to take a “new look” at how new technology companies can change the competitive landscape in the banking and payments sector.
Allies in Washington
According to the WSJ, Washington politicians on both sides of the aisle are closely watching how large technology companies are changing the way people shop, work and interact with each other.
However, the upcoming presidential elections could make any legal action against visas more difficult. If charges are indeed brought in the coming days, the case could possibly be handled under a Joe Biden administration.
Biden was quoted as saying that economic concentration “threatens our American values of competition, freedom of choice and shared prosperity”.