The Justice Department's announcement last week it would block Visa's $5.3 billion acquisition of Plaid has the potential to change the landscape of the financial services industry, said Pahl Zinn, an antitrust attorney for Dickinson Wright.
"The outcome of this case will decide how the financial services industry might ultimately evolve in an ever-changing world of technology — acquisition of small, innovative fintechs or organic growth," he said.
The coronavirus pandemic has already brought significant changes, such as the acceleration of contactless transactions and a glut of online sales as the nation practices social distancing, Zinn said.
It's the latter type of transaction over which the DOJ claims Visa has a monopoly, Zinn said.
"Visa is a monopolist in online debit transactions, extracting billions of dollars in fees annually from merchants and consumers," the DOJ wrote in its filing last week. "Plaid, a financial technology firm with access to important financial data from over 11,000 U.S. banks, is a threat to this monopoly: it has been developing an innovative new solution that would be a substitute for Visa's online debit services."
Zinn said it's clear the DOJ is taking an "all-or-nothing" approach to its lawsuit against Visa.
"Absent from the DOJ's complaint are allegations of divestiture or restructuring," he said. "In other words, in the eyes of the DOJ, this is a zero-sum game — stop the acquisition and preserve competition in the financial services industry brought on by up-and-coming fintech companies."
The DOJ's success will hinge on how well it can equate Plaid's soon-to-be-offered pay-by-bank debit services as a clear and present threat to Visa's alleged monopoly in online debit transactions, Zinn said.
In its complaint, the DOJ cited Visa CEO Al Kelly's description of the deal as an "insurance policy" to neutralize a "threat to our important US debit business" as evidence the deal represents an anti-competitive move on the part of the payment processor.
The DOJ's lawsuit comes during a year that saw an active fintech M&A scene.
Visa's closest competitors, Mastercard and American Express, have pursued their own fintech deals this year. Mastercard agreed to purchase data aggregator Finicity for $825 million in June, and American Express completed its estimated $850 million purchase of online lender Kabbage last month.
Other fintech deals announced in the past year include personal finance startup SoFi's purchase of application programming interface (API)-based payments platform Galileo Financial Technologies, and bookkeeping company Intuit's planned acquisition of credit scoring fintech Credit Karma.
The DOJ, which is reportedly also scrutinizing the Intuit deal, has taken notice of the sector's activity and reorganized the DOJ's antitrust division as a result, said Eleanor Tyler, an analyst at Bloomberg Law.
Makan Delrahim, assistant attorney general for the DOJ's antitrust division, recently set up a new financial technology unit within the department, a sign the DOJ is boosting its oversight of the sector, Tyler said.
"If they're more worried about competition in financial services markets, to the point where they set up a new group within the division to study it, work on it and become experts, then they think there's something afoot that they need to keep an eye on," Tyler said.
The DOJ's case against the Visa's Plaid takeover could have significant implications for future fintech deals, Tyler said.
"The one thing I do keep hearing about competition in this market is that it's essentially a feeding frenzy to pick up a fintech among the legacy players,” she said. "If this goes through, that intensifies. If it doesn't, then it might slow down."
Nathan Hilt, managing director at international consulting firm Protiviti, said he thinks it's likely the DOJ will win this case but emphasized the outcome shouldn't stop other fintechs from pursuing inorganic growth.
"There is increased scrutiny of deals by the DOJ for larger payment, fintech and tech players, yet growing inorganically is key for these organizations to remain relevant, tap into new markets, increase services and acquire talent," he said. "Even if the DOJ is successful in this instance, it does not mean they will sue to stop every acquisition. Startups should continue to work with companies like Visa and Mastercard and, when appropriate, take investment, as well as consider acquisition or joint venture opportunities."