By Brent Kendall and AnnaMaria Andriotis

The Justice Department filed an antitrust lawsuit Thursday that seeks to block Visa Inc.'s $5.3 billion deal to acquire Plaid Inc., a key player in the financial-technology space.

The department brought the case in a Northern California federal court, alleging the deal would eliminate the nascent but significant competitive threat that Plaid poses to Visa in the online debit market. The acquisition would allow Visa to unlawfully maintain a monopoly in online debit, leading to higher prices, less innovation and higher entry barriers for online debit services, the department alleged.

"Visa seeks to buy Plaid -- as its CEO said -- as an 'insurance policy' to neutralize a 'threat to our important US debit business,'" the Justice Department said in its lawsuit.

A Visa spokesman said the lawsuit is "legally flawed and contradicted by the facts...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's business faces intense competition from a variety of players -- but Plaid is not one of them," the spokesman added.

Plaid declined to comment.

The Justice Department had been scrutinizing the deal since early this year. The Wall Street Journal reported last week that the transaction was facing legal jeopardy, with the department making preparations for potential litigation.

Visa is the largest U.S. card network, accounting for the largest dollar amount of credit, debit and prepaid transactions. It accounted for about 70% of debit and prepaid transactions during the first half the year, according to the Nilson Report, a trade publication.

Plaid provides the technological infrastructure underpinning an array of next-generation financial apps, including Venmo, the digital money-transfer service owned by PayPal Holdings Inc. It has been viewed by fintech companies and merchants as a platform that could one day enable consumers to make purchases without having to rely on debit and credit cards, instead allowing for payments to be made directly from a consumer's bank account to a merchant's account.

The San Francisco-based startup, which currently doesn't operate a payments network, has said it provides connections between more than 11,000 banks and financial-services companies and more than 200 million consumer accounts.

Write to Brent Kendall at brent.kendall@wsj.com and AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

11-05-20 1132ET