Guest Post: The Problems With The DOJ's Complaint Against Visa-Plaid
Hey everyone—Ian here. We asked Matt Janiga, General Counsel at Privacy.com and @regulatorynerd to share some thoughts on the DOJ’s latest filing against Visa and the Plaid acquisition. Matt’s incredibly experienced, working on the legal teams at Square and Stripe, and regularly shares a lot of his great opinions on the fintech landscape on Twitter. *This article is his insight and opinion, and not necessarily that of Fintech Today’s. *
The DOJ’s complaint on Visa’s acquisition of Plaid lands a good first punch, but Visa would be justified to challenge this (and from their recent press releases it looks like they might). Here’s where I think the DOJ gets it wrong and why I think Visa could prevail.
1. Plaid as a serious debit network competitor
The DOJ claims Plaid was a threat to Visa and therefore should remain a stand alone company. The DOJ quotes statements from the Microsoft antitrust case about keeping monopolists from buying companies that are a “significant competitive threat.” But seeing Plaid, which currently has no publicly available funds movement network technology or known merchant acquirers, as a credible rival to Visa’s network requires a bit of reaching.
Yes, Plaid is a strong company with a steadily compounding business. And yes, it has capabilities to draw information from accounts at some 11,000 U.S. financial institutions. But building a payments business is hard. And just because Plaid has Venmo, Acorns and Betterment as data customers doesn’t mean those companies are going to rip out their own payment stacks or issuing processor deals to hop on the U.S.S. Plaid’s maiden voyage into payments.
I think reality paints a different picture and harshly conflicts with the DOJ’s allegations. For example, STAR, a debit network owned by Fiserv has nearly 6,000 U.S. financial institutions as issuing customers and 134 million U.S. issued payment cards. Star also reportedly has ~20% of the U.S. debit market volume. And now that the payment network is part of the Fiserv family, they have access to TONS of bank issuing partners. Fiserv has all the pieces necessary to be a gigantic threat to Visa and Mastercard. And yet . . . they’re not. Because payments is hard. Same for Shazam, PLUS, NYCE, Jeanie and all the other U.S. PIN debit networks (especially the ones owned by the FIS/Worldpay/Vantiv behemoth).
If none of them have strung together a viable Visa or Mastercard competitor, how is Plaid suddenly going to come out of nowhere and create a third major player in the U.S. debit market?
2. The DOJ’s Claims Against Visa Miss the Real Anti-Competitive Activities
The DOJ makes a big deal out of Visa’s share of trademarked cards – the plastic things with a Visa logo on it. But owning 70% of trademarks on U.S. debit cards is like cornering the market on tootsie roll wrappers. It’s worth something, but you’re not quite sitting on what people are really interested in. The real battle is merchant acceptance of debit cards, because thanks to the two-network requirement in Dodd-Frank, the merchant can choose how to route a debit PAN. And savvy companies have teams or partners to build low-cost debit routing logic for this very reason.
Visa (and Mastercard) don’t tell issuers which other networks to pick. They don’t, and legally can’t, block merchants from building a low-cost debit routing programs. So who’s really to blame for Visa and Mastercard’s unchanging market share?
I’d point my finger at the large banks and the merchants themselves, each of which ignore other structural and market options to lessen their dependence on Visa.
The merchants are taking a lobbying vs. business approach to Visa’s fees, as you can see their talking points in the DOJ claims. talking points in the DOJ claims against Visa. For example, the filing claims that Visa’s network fees are an indirect tax on consumers because Visa’s fees cause merchants to raise their prices. This is the same logic that merchants have been pushing in other forums. It also ignores the reduction in processing costs that merchants saw thanks to Durbin’s interchange caps on large issuers.
3. The DOJ Ignores What’s Happening in Europe
The DOJ filing reads as if Plaid is some kind of open-banking Holy Grail and the U.S. market operates in a vacuum. I have not read the CFPB’s proposal on consumer financial data access yet, but I am convinced that open banking is coming to the U.S in the next few years. The DOJ seems to be convinced of this, too, but it ignores the fact that there are dozens of EU-based companies that can slide into the U.S. market, leverage their technology and scale from Europe, and better create the kind of mythological Visa competitor that they think Plaid is today.
Other Things To Note From The Complaint…Mastercard Is Getting A Pass
The Twitterati were rightfully wondering whether DOJ’s scrutiny of the Plaid acquisition would also mean that Mastercard might be blocked from buying Finicity. But the DOJ signals it’s not concerned with Mastercard, saying the company hasn’t put a dent in Visa’s alleged monopoly and “this appears unlikely to change.” If anything, DOJ just handed Mastercard the arguments it needs to defend its own deal – DOJ says Mastercard needs this to break up Visa’s alleged monopoly.
If I ran Visa
Plaid is a complimentary piece, so it makes sense for them to push to close the deal. I think I can easily rebut the DOJ’s case and debunk their market arguments and cherry-picked anecdotes, and I don’t have access to the full picture like Visa does. I’d also be really pissed to have my quotes used like that in a filing, some of which I assume were taken out of context or relayed to DOJ as verbal testimony (creating a he-said, he-said).
If I ran Visa, I’d leverage my revenue and world-class attorneys to defend the company. It wouldn’t be scorched earth – I’d talk to DOJ to see how we can settle. Maybe it’s agreeing to freeze FANF and other fees that DOJ winks at for a period of time. Maybe its divesting of some non-strategic asset like Cybersource or Playspan. But I’d head to court and push to take this all the way to SCOTUS if that’s what it took.