You likely have heard that the Department of Justice (DoJ) is suing Visa to stop their sale of Plaid. Plaid, if you are not familiar, is a data aggregator that collects permissioned (or hopefully permissioned) banking information and funnels that data to an app where consumers can get a consolidate view of their finances to help with budgeting, savings and investing. Plaid also can validate checking accounts for decoupled debit or private label debit programs where consumers can use an app or a physical card to make purchases directly from their checking account.
And that last point is at the center of the lawsuit.
The DoJ says that they have evidence that Visa felt threatened by Plaid and its potential impact on the debit industry, so much so that Visa paid $5 Billion (not a typo) to buy Plaid just to shut them down. I have to say of all the payments related lawsuits I have read, this is one of the most interesting. I highly recommend reading it here. It is only 30 odd pages long. Spoiler alert: there are several misstatements about the debit and payments industry, plus a sketch of a volcano (again, not a typo).
The payments industry is no stranger to expensive, long drawn out legal battles that can change the future direction for specific products. An article in the Wall Street Journal had this to say about the potential influence of this particular legal action:
Whatever the outcome, for investors the suit could focus attention on how payments might evolve, in particular the potential of pay-by-bank arrangements. Also sometimes called account-to-account payments, pay-by-bank involves transferring money online directly between bank accounts and doesn’t involve a card network like Visa or Mastercard. Today such transfers may be familiar to consumers in some realms, such as paying bills online with checking accounts. But they aren’t yet typically an online shopping payment option for consumers, at least not directly.
I don’t know if Visa violated the Sherman Act or not, but I do know that regardless of Visa’s intended purchase of Plaid, there are still many providers of data aggregation, some much larger than Plaid, and private label debit will continue to grow with or without Visa’s ownership of Plaid.
Overview by Sarah Grotta, Director, Merchant Services at Mercator Advisory Group
