Dive Brief:

• The Department of Justice (DOJ) filed a civil antitrust lawsuit Thursday to stop Visa's $5.3 billion acquisition of data aggregator Plaid, claiming the deal would limit competition in the industry. 

• Reports emerged last month that the department was calling on witnesses in preparation for potential litigation against the deal.

• "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. "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."

Dive Insight:

The DOJ, which brought the case in the U.S. District Court for the Northern District of California, said the proposed acquisition violates Section 2 of the Sherman Act "and must be stopped."

In its filing, 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.

"By acquiring Plaid, Visa would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers," the DOJ said. 

Visa controls 70% of the online debit transactions market, with competitor Mastercard accounting for 25%, the DOJ's attorneys said.

"For years, Mastercard has neither gained significant share from Visa nor restrained Visa's monopoly," the attorneys said. 

The DOJ claimed Visa has also "hamstrung smaller rivals" by either erecting barriers to entry or entering into restrictive agreements with banks.

"These entry barriers, coupled with Visa's long-term, restrictive contracts with banks, are nearly insurmountable, meaning Visa rarely faces any significant threats to its online debit monopoly. Plaid is such a threat," the DOJ's attorneys said. 

Visa, which announced the deal in January, pushed back on the DOJ's attempt to block the deal, calling the move "legally flawed and contradicted by the facts." 

"This action reflects a lack of understanding of Plaid's business and the highly competitive payments landscape in which Visa operates," the card network said in a statement Thursday. "The combination of Visa and Plaid will deliver substantial benefits for consumers seeking access to a broader range of financial-related services, and Visa intends to defend the transaction vigorously."

Visa said it explained to the DOJ that Plaid is not a payments company, and Visa's business faces competition from a variety of players — "but Plaid is not one of them."

Plaid declined Banking Dive's request to comment.

The San Francisco-based fintech connects finance apps such as Venmo, Chime and TransferWise to customers' bank accounts. The DOJ complaint claims the company's network connects 200 million consumer bank accounts and 11,000 U.S. banks. 

Plaid's reach could pose a threat to banks' business models, Eleanor Tyler, an analyst at Bloomberg Law, said last week. 

"Plaid connects to a lot of neobanks that challenge the banks' business model," Tyler said. "If that's where Visa's honeypot is — their main income — then it might make sense to throttle Plaid."

Banks have been wary of data aggregators' use of screen scraping — a practice that allows Plaid and companies like it to take bank customers' user names and passwords, log in on their behalf, and copy and paste their account information into a third party's software. 

Big banks including JPMorgan Chase and PNC have derided the practice as insecure, and have taken measures to prevent it. The two banks changed their policies and security this year to block aggregators like Plaid from scraping user data.

Wells Fargo forces aggregators such as Plaid and Yodlee to route the customer data they pull from the bank's server through an application programming interface, giving the customer greater control.

TD Bank also took aim at Plaid last month, claiming the company knowingly created a user interface that features TD's trademark, logos and color scheme and mimics the bank's login page in an effort to "dupe" TD customers who are linking their bank accounts to payment apps into believing they are entering their personal data into the bank's platform. 

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. 

The DOJ signaled it was concerned with the Visa-Plaid deal last week when it filed a petition asking a U.S. district court in Massachusetts to require consulting firm Bain & Co. to turn over documents as part of its antitrust review, Reuters reported.