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. 

NEWSWORTHY

A phone in the hand is worth two in the bush. Some early "hands on" reviews are out for Apple's two delayed 5G iPhone models. CNET says the iPhone Mini is the most interesting new iPhone this year with "a return to the idea of packing the most features into the smallest body." And The Verge says the iPhone Pro Max doesn't do much to take advantage of its larger screen. Our favorite YouTubers don't seem to have posted anything yet, so stay tuned for those links. There are also reviews of Sony's PlayStation 5 out. Engadget liked the 4K gaming experience but dings the ginormous and flimsy console case.

This porridge is just right. Speaking of 5G, T-Mobile's Goldilocks flavor of 5G, which has fast speeds and decent coverage, only covers 30 million people right now. But along with boffo earnings that blew away Wall Street estimates, the carrier also announced on Thursday that it would expand the 5G network quickly enough to cover at least 200 million people by the end of 2021. "We’re off to the races,” Neville Ray, T-Mobile’s president for technology, told me. T-Mobile's stock, already sitting on a 50% gain in 2020, jumped another 5% in pre-market trading on Friday, almost hitting a new all-time high.

He's on an intergalactic cruise in his office. Sometimes, no matter how hard you pedal, it's hard to impress. Peloton said its revenue more than tripled to $758 million but also warned it couldn't keep up with surging demand for its exercise gear. "We realize that some of our members have faced extended delays," CEO John Foley admitted. Peloton shares, already up 346% (not a typo), fell 5% in premarket trading.

No moneyman can win my love. Elsewhere on Wall Street, Uber reported third quarter revenue slid 18% to $3.1 billion, as the pandemic cut into rides. Looking beneath the surface, Uber's delivery business almost tripled, but that wasn't enough to make up for revenue from rides getting cut in half. Uber's stock, up 41% so far this year, slipped 2% in premarket trading. Pandemic beneficiary Square said its net revenue skyrocketed 140% to $3 billion. Its stock, already up 180%, rose another 4% on Friday morning. And Rokurevenue gained 73% to $452 million while the number of active accounts grew 43% to 46 million. Roku's shares, previously up 68%, gained another 5% on Friday morning.

Now I'm somebody else. While the presidential election ballot counting goes on, Bloomberg notes that President Trump's special treatment on Twitter would end if he loses the election. As a world leader, Trump's tweets are not deleted and he cannot be banned for rule violations. Former leaders don't get the same exemptions, Twitter told the news service.

FOOD FOR THOUGHT

Smartphones can be an addictive distraction at times. So Shopify software developer Maxime Vaillancourt has written a how-to guide for setting up phones to be more useful and less of a productivity killer.

Imagine a screwdriver.

A screwdriver is a tool in its purest form. It does not ask for anything, does not require maintenance, and doesn’t distract from the task at hand. It just sits there, patiently waiting to be picked up when needed.

A tool does its job, then gets out of the way.

This is the kind of relationship I want with my smartphone. It should be tool, and nothing else. With that in mind, I set out to turn my smartphone into a tool again. This “tool, not distraction” mentality is useful for all kinds of modern technology, not just smartphones.

FOR YOUR WEEKEND READING PLEASURE

A few great long reads I came across this week:

From McDonald’s to Google: How Kelsey Hightower became one of the most respected people in cloud computing (Protocol)
A self-taught technologist with a storyteller's voice, Kelsey Hightower defied the enterprise tech sector's notorious diversity problems to become one of the industry's leading figures. Now he wants everyone's voice to be heard.

The Unsinkable Maddie Stone, Google’s Bug-Hunting Badass (Wired)
The Project Zero reverse engineer shuts down some of the world's most dangerous exploits—along with antiquated hacker stereotypes.

Here's What a Carbon Offset Actually Looks Like (Outside)
Carbon offsets are confusing, and many people wonder how—or if—they even work. Hoping to find a more guilt-free way to travel, frequent flier Tim Neville heads to the ranchlands of Montana to see what an offset looks like on the ground. Hint: it involves cows.

'I was howling in pain': how falling five storeys from a New York rooftop changed my life (Sydney Morning Herald)
One minute he was gazing at the New York skyline, the next he was plummeting five storeys to the ground to an almost certain death.

IN CASE YOU MISSED IT

From ice cream to Zoom screenings: How female filmmakers are getting their work seen in the pandemicBy Michal Lev-Ram

Are Chinese spies trying to hack this anticensorship startup? Its execs believe soBy Robert Hackett

Feds seize $1 billion in Bitcoin from mystery man ‘X’By Jeff John Roberts

U.K. to use A.I. to spot dangerous side effects in the millions of COVID-19 vaccinations it will deliverBy Jeremy Kahn

T-Mobile can’t claim to have the ‘best’ 5G network, ad body saysBy Aaron Pressman

Tech stocks could rally another 15% this year with a Biden win and split Congress, says analystBy Anne Sraders

Must-have gadgets and accessories for safer winter (and pandemic) travelBy Rachel King

(Some of these stories require a subscription to access. Thank you for supporting our journalism.)

BEFORE YOU GO

Painter David Hockney may be the greatest iPad artist of all time. With a second lockdown looming in Europe, Hockney has released two new works from his iPad to celebrate fall, following a spring image he posted in March. I'd love a poster of either "The Big Tree in Autumn" or "The Pond in Autumn," probably both inspired by his local scenery in Normandy. “Remember they can't cancel the autumn either,” the painter advises. Have a beautiful weekend.