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Why Visa’s $5 billion Plaid deal is in deep trouble

One of the best scenes in John McTiernan’s 1999 masterpiece The Thomas Crown Affair comes when the title character, a sexy corporate raider guy, decides to sell a subsidiary. Gathered in a conference room, the buyers hoot and holler as Crown signs the paperwork.

“Thomas Crown, forced to sell something,” says one. Says another: “So what do you think Crown, don’t have any regrets about how you played this?”

Actor Pierce Brosnan in the role of Crown shoots them a withering glance and replies: “Regret is usually a waste of time, as is gloating. Have you figured out what you’re going to say to your board when they learn that you paid me thirty million more than others were offering?”

In real life, the stars of M&A probably win just as often but keep those kinds of thoughts to themselves.

So you have to wonder what was on the faces of Visa’s M&A team when they were finalizing a deal last December to buy plucky fintech upstart Plaid for a mighty price of $5.3 billion, an astonishing 50 times Plaid’s annual revenue. The Plaid execs, it seems, wanted to impress their buyers with some details about their future strategy. As the plumbing for personal finance apps like Venmo and Acorns, Plaid helped millions of consumers connect data from 11,000 banks. Its next move was a new service that would let consumers make online payments directly from all those bank accounts. It would be a lucrative foray into payments because the existing debit card-based market charged such “high prices,” Plaid’s team mentioned a few times, that they could undercut by 50%.

Plaid had “described the service with the joy of someone who forgot we had 70% share,” one Visa exec wrote after the meeting. Oops.

That overpriced market where consumers and online sellers face high prices? It’s dominated by Visa. Thus, the Visa team concluded, Plaid was a threat. One exec even drew a picture of a submerged island volcano to drive home the point. Within a few years, Plaid’s new service could grab up to $500 million a year from Visa’s $2 billion of online debit payments revenue, they estimated. “I don’t want to be IBM to their Microsoft,” the volcano artist explained.

Visa CEO Alfred Kelly agreed, telling CFO Vasant Prabhu the expensive deal would be an “insurance policy to protect our debit biz in the US.” In another missive, Kelly admitted the deal “does not hunt on financial grounds,” but for the company’s “critical” debit market, “we must always do what it takes to protect this business.” And since Plaid works with the top fintech startups, owning it would also give Visa a front row seat to uncover other possible threats.

But unlike Thomas Crown, Visa may not get away with it. On Thursday, the DOJ filed a lawsuit to block Visa’s acquisition of Plaid and, as you can tell from all the quotes, it’s chock full of smoking guns—or at least a smoking volcano. The taut 23-page complaint looks like an open-and-shut case against a dominant company trying to snuff out a competitive threat.

Visa knew the lawsuit was coming but their response didn’t seem to reflect the evidence contained within. “Visa’s business faces intense competition from a variety of players—but Plaid is not one of them,” the company argued. As Thomas Crown might say, regret is a waste of time, as is mendacity.

Aaron Pressman
@ampressman
aaron.pressman@fortune.com

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This week on Fortune‘s Brainstorm podcast, we explore the technology that’s helping fight COVID-19. Brian O’Keefe speaks with Nvidia’s VP and General Manager of Healthcare. The company’s A.I. platforms are driving not only the search for a vaccine, but also developing therapeutics, COVID-19 testing, and more.

Then, Michal Lev-Ram points out that even once a vaccine is discovered, governments have to figure out the logistics of distribution. Plus, there’s an added challenge of public skepticism around receiving the vaccine. Lev-Ram speaks with Qualtrics President Zig Serafin about tackling these problems. Listen to the episode here

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