Justice Department sues Visa, alleging card issuer monopolizes debit card market

NEW YORK (AP) — The U.S. Justice Department has filed an antitrust lawsuit against Visa, alleging that the financial services giant is using its size and dominant position to stifle competition in the debit card market, costing consumers and businesses billions of dollars.

The complaint filed Tuesday says San Francisco-based Visa penalizes merchants and banks that don’t use Visa’s own payment processing technology to process debit transactions, even though alternatives exist. Visa charges an incremental fee for each transaction processed on its network.

According to the Justice Department complaint, 60% of debit transactions in the United States are made through Visa’s debit card network, allowing the company to collect more than $7 billion in fees each year to process those transactions.

“We allege that Visa has unlawfully amassed the authority to charge fees that far exceed what it could charge in a competitive marketplace,” Attorney General Merrick B. Garland said in a statement. “Merchants and banks pass on these costs to consumers by raising prices or reducing quality or service. As a result, Visa’s unlawful conduct affects not just the price of one thing — but the price of almost everything.”

Julie Rottenberg, Visa’s general counsel, said in a statement that the lawsuit fails to take into account the “ever-expanding universe of companies offering new ways to pay for goods and services.”

“Today’s lawsuit ignores the fact that Visa is just one of many competitors in the debit space that is growing and new entrants are thriving,” Rottenberg said. She added that the lawsuit is “meritless” and that the company will “vigorously defend itself.”

The Biden administration has aggressively targeted U.S. companies it says act as intermediaries, such as Ticketmaster is the leader of Live Nation and a real estate software company Real pageaccusing them of charging Americans unreasonable fees and engaging in anti-competitive behavior. The administration has also brought antitrust charges against tech giants like Apple and Google.

“In some of the Justice Department’s antitrust enforcement actions, the harm caused by the alleged illegal conduct is more visible: higher prices for air travel, concert tickets, smartphones,” Garland said during a news conference in Washington on Tuesday. “The harmful effects of Visa’s alleged anticompetitive conduct are less visible, but they are no less harmful.”

According to the DOJ complaint filed in the U.S. District Court for the Southern District of New York, Visa uses the massive volume of transactions on its network to impose volume obligations on merchants and their banks, as well as on the financial institutions that issue debit cards. This makes it difficult for merchants to use alternatives, such as cheaper or smaller payment processors, instead of Visa’s payment processing technology without incurring what the DOJ called “disloyalty penalties” from Visa.

The Justice Department also found that Visa restricts competition by paying to enter into partnerships with potential competitors.

In 2020, the Department of Justice sued to block the company’s $5.3 billion purchase of financial technology startup Plaidcalling it a monopolistic takeover of a potential competitor to the ubiquitous Visa payments network. That takeover was ultimately later called off.

Visa It was previously disclosed that the Justice Department was investigating the company in 2021.stating in regulatory filings that it is cooperating with the Justice Department’s investigation into its debit practices.

Since the pandemic, more consumers around the world have been shopping online for goods and services, which has led to more revenue for Visa in the form of fees. Even traditionally cash-based businesses like bars, hairdressers and coffee shops have begun accepting credit or debit cards as a form of payment, often via smartphones.

KBW analyst Sanjay Sahrani said in a note to investors that he estimates that U.S. debit card revenues are, at most, about 10% of Visa’s revenue.

“Some of that could be lost if there is a financial impact,” he said. “Visa’s U.S. consumer payments business is the slowest-growing part of the combined business and to the extent its contribution is affected, it will likely have a very limited impact on revenue growth.”

He added that the case could drag on for years if it is not resolved and goes to court.

Visa processed $3.325 trillion worth of transactions on its network in the quarter ended June 30, up 7.4% from a year earlier. U.S. payments rose 5.1%, a faster increase than U.S. economic growth.

Visa shares fell $15.85, or 5.5%, to close Tuesday at $272.94.

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Associated Press writer Alanna Durkin Richer in Washington contributed to this article.