Visa has called off its deal to buy fintech start-up Plaid for $5.3bn after the US Department of Justice sued to block the transaction on antitrust grounds.

The company denied it had been trying to eliminate a potential competitor but said it wanted to avoid “protracted and complex litigation”.

“We are confident we would have prevailed in court as Plaid’s capabilities are complementary to Visa’s, not competitive,” said Al Kelly, chief executive.

The decision is a blow to Visa’s effort to add fast-growing fintech services to its payments business. Plaid provides software that connects fintech companies such as payments group Venmo and financial planning company Mint with their customers’ bank accounts.

When the deal was announced in January 2020, Mr Kelly said it would put the combined company “at the epicentre of the fintech world”.

But the DoJ moved to block the deal in early November, arguing that Visa had chosen to acquire Plaid because it was developing a payments platform that would challenge Visa’s dominance in the sector.

In the complaint, the DoJ cited internal Visa documents from 2019 in which one executive allegedly described Plaid as a “volcano” whose current capabilities are just “the tip showing above the water” and warned that “[w]hat lies beneath, though, is a massive opportunity — one that threatens Visa”.

The DoJ claimed that Visa’s senior management warned some of the company’s directors that there was a “potential downside risk of $300m-$500m” to its US debit business by 2024 if Plaid were bought by a rival.

Visa disputed the claim and Plaid echoed Mr Kelly in its own statement announcing the end of the deal. It called the DoJ’s point of view “misguided”.

Plaid has experienced a boost in usage during the pandemic, according to Zach Perret, chief executive. “We made great strides last year, growing our customers by more than 60 per cent and adding hundreds of banks to our platform,” he said.

The company, which is backed by venture capital investors including Kleiner Perkins and Andreessen Horowitz, could remain a takeover target for other larger fintech companies.

Makan Delrahim, US assistant attorney-general, welcomed Visa’s retreat. “In a victory for American consumers and small businesses, Visa has abandoned its efforts to acquire an innovative and nascent competitor,” he said.