The US Department of Justice filed a lawsuit on Tuesday, accusing Visa of unlawfully monopolizing the debit card processing market. The DOJ alleges that Visa has used its position in the market for over a decade to stifle competition, prevent the entry of new payment processors and force businesses to rely on Visa’s network.
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The DOJ accuses Visa of employing tactics to stifle competition in the debit card market. Visa allegedly punished businesses that attempted to use alternative payment networks.
The company is said to have paid off potential rivals, thus limiting their ability to compete fairly. These actions, according to the DOJ have reduced innovation in the debit payments ecosystem.
Visa processes over 60% of debit transactions in the United States. This generates approximately $7 billion annually in fees for the company.
The DOJ argues that Visa’s practices have led to higher fees for merchants, which in turn have been passed on to consumers through increased prices for goods and services. Visa’s behavior has allegedly resulted in inflated costs across a wide range of industries.
Visa’s alleged monopoly power has led to additional costs for both consumers and merchants. Higher transaction fees directly impact the prices consumers pay affecting younger and lower-income Americans.
Attorney General Merrick Garland stated that Visa’s actions affect the price of nearly everything.
The DOJ investigation into Visa began in 2021 following concerns that the company was violating antitrust laws. This lawsuit is part of the Biden administration’s strategy to challenge monopolistic behavior by large corporations in sectors that influence day-to-day consumer spending.
Visa has allegedly entered into exclusive agreements with merchants, effectively locking them into using Visa’s payment network. The DOJ claims that Visa imposed or threatened higher fees on merchants if they used rival payment networks for debit transactions.
These practices were reportedly put in place after a 2012 law required banks to make debit cards compatible with at least two competing payment networks.
By limiting competition, Visa is accused of slowing down innovation in the debit payments ecosystem. Alternative payment networks that could provide better or cheaper services have struggled to gain a foothold.
The DOJ claims Visa has also prevented technological firms like PayPal and Square from fully entering the debit card market by striking deals that discouraged them from competing.
Visa’s general counsel, Julie Rottenberg rejected the DOJ’s claims, calling the lawsuit meritless. Rottenberg argued that Visa operates in a competitive market and that consumers and businesses choose Visa because of its secure and reliable network.
Visa’s market power in the debit card sector is huge, processing $3.8 trillion in US debit transactions over the last year.
The company’s dominance in the market is not only in physical card transactions but also extends to online and app-based purchases. Visa’s alleged actions to suppress rival payment networks have allowed it to maintain this position, according to the DOJ.
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In 2020, the DOJ blocked Visa’s $5.3 billion acquisition of fintech firm Plaid, saying that the deal would have eliminated a potential competitor in the online payments space.
Visa eventually abandoned the deal after the DOJ’s intervention. Mastercard, Visa’s primary competitor has also faced scrutiny over similar antitrust issues.
In 2022, the Federal Trade Commission (FTC) required Mastercard to share customer account data with rival networks to promote competition.
The DOJ has not specified what actions Visa must take to resolve the lawsuit. Analysts suggest that the case could result in some form of manageable mitigation for Visa.
The DOJ’s request is for the court to recognize Visa as a monopoly and to bar the company from continuing its alleged anti-competitive practices. The legal process is expected to take considerable time with the potential for settlement negotiations along the way.
Following the announcement of the lawsuit, shares of Visa fell by more than 5%, the company’s steepest daily decline of the year.
Recent actions by the Federal Deposit Insurance Corporation (FDIC) and DOJ have signaled a tougher stance on bank mergers and financial services monopolies.
The outcome of this case could influence the future of major financial deals such as Capital One’s proposed $35.3 billion acquisition of Discover Financial Services.
In 2021, the DOJ intervened to block Visa’s proposed $5.3 billion acquisition of financial technology startup Plaid, which was perceived as an attempt by Visa to eliminate a potential competitor.
Following the lawsuit, Visa scrapped the merger deal. Visa has also been embroiled in other antitrust cases including a class-action settlement with merchants that sought $30 billion in damages for allegedly inflated fees.
A federal judge rejected the settlement indicating that Visa and Mastercard need to offer more concessions to resolve the dispute.
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