DOJ Sues Visa for Monopolizing Debit Markets

The United States Department of Justice (DOJ) filed a motion antitrust civil lawsuit Visa was indicted Tuesday for monopolizing and otherwise unlawfully engaging in debit card network markets in violation of Sections 1 and 2 of the Sherman Act.

The lawsuit, filed in the United States District Court for the Southern District of New York, accuses Visa of unlawfully maintaining a monopoly in debit card network markets, using this dominant position to block the growth of existing competitors and prevent others from developing new and innovative alternatives.

According to the complaint, more than 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 a year in fees to process those transactions.

The complaint further alleges that Visa illegally maintains its monopoly position by isolating itself from competitors. For example, Visa uses its dominant position, massive scale, and centrality in the debit ecosystem to impose a web of exclusionary agreements on merchants—including convenience stores—and banks. These agreements penalize Visa customers who direct transactions to another debit network or alternative payment system. In doing so, the complaint alleges, Visa blocks debit volume, isolates itself from competition, and stifles smaller, lower-cost competitors. Visa also induces potential competitors to become partners rather than enter the market as competitors by offering generous monetary incentives and threatening additional punitive fees. Visa acquired competitors because it feared losing market share, revenue, or being replaced entirely by another debit network, the complaint alleges.

“We allege that Visa has unlawfully amassed the authority to charge fees that far exceed those it could have charged in a competitive market,” he said. Attorney General Merrick Garland“Retailers and banks pass on these costs to consumers, either by raising prices or by 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.”

Debit transactions are an important and popular part of the U.S. financial system, the DOJ said. Millions of Americans prefer or are required to use debit cards for online and in-person purchases. Visa dominates the debit card networks that facilitate these transactions, charging significant fees and stifling competition in the process. Visa’s systematic efforts to limit competition in debit transactions have imposed billions of dollars in additional fees on U.S. consumers and businesses and have slowed innovation in the debit payments ecosystem.

The lawsuit says the Justice Department “seeks to restore competition in this important market on behalf of the American people.”

Visa maintains enormous scale on both sides of the debit market—with merchants and their banks, and with consumers and their banks—and the complaint alleges that Visa’s exclusionary practices widen, deepen, and protect what it calls a “massive moat” around its business. Faced with the possibility that smaller debit networks or new technological entrants would threaten that position, Visa has taken a deliberate and fortifying course of action to shut out competition and prevent rivals from gaining the scale, share, and data necessary to compete for consumers’ business.

Visa uses leverage based on the large number of transactions that must pass through Visa’s payment rails to impose expansive volume commitments on merchants and their banks, as well as on the financial institutions that issue debit cards. These agreements are priced so that if all or almost all of the debit volume does not pass through Visa’s payment rails, large non-loyalty penalties can be imposed on all Visa transactions. Merchants cannot afford to use smaller Visa competitors for transactions where options exist, even if those competitors offer lower prices per transaction.

As Visa’s internal documents make clear, the Justice Department found that Visa was concerned that some tech companies and fintech startups with “network ambitions” would eliminate Visa as the middleman between merchants, consumers, and their banks by offering a better or cheaper payment product. Visa intended to stifle that growth by striking deals to pay potential competitors for partnerships rather than innovation. As Visa’s then-CFO said, “Everyone is a friend and a partner. No one is a competitor.”

In response to a request for comment on the Justice Department’s actions, Julie Rottenberg, Visa’s general counsel, said: CSP,“Anyone who has purchased anything online or made a payment in a store knows that there is an ever-expanding universe of companies offering new ways to pay for goods and services. Today’s lawsuit ignores the reality that Visa is just one of many competitors in the debit space, which is growing, with new players thriving. When businesses and consumers choose Visa, it is because of our secure and reliable network, world-class fraud protection and the value we provide. We are proud of the payments network we have built, the innovation we promote and the economic opportunity we enable. This lawsuit is without merit and we will defend ourselves vigorously.”

The Merchants Payments Coalition (MPC) welcomed the lawsuit against Visa. “This is further evidence that Visa has systematically blocked competition in the debit card market,” said MPC Executive Committee member and National Association of Convenience Stores (NACS) General Counsel Doug Kantor. “Visa has consistently broken the law to maintain a monopoly on setting and processing fees for transactions made on cards issued under its brand. While this case focuses on debit cards, it illustrates the need for competition in credit card swipe fees, which currently face no competition.”

San Francisco-based Visa Inc. has global operating income of $18.8 billion and an operating margin of 64% in 2022. North America is among Visa’s most profitable regions with an operating margin of 83% in 2022. Visa collects about $8 billion annually in network fees on U.S. debit volume. Globally, Visa processes $12.3 trillion in total payment value.

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This story was originally published on CSP Daily Newssister publication Supermarket news.