Throw the book to Visa

The use of debit cards has now increased to levels that equal or exceed the use of credit cards. In 2020, you will issue a debit card for the first time exceededin dollars, credit card expenses. In 1969, Bank Americard would have considered this a disaster. But this was actually very good news for the company’s successor, Visa, because Visa now dominates the debit card industry and has done so for many years. Sixty percent of all debit transactions take place on the Visa network; only about 25 percent operate on the Master Card network, which comes in a distant second. There have been years (such as 2022) when Visa generated more revenue from its debit business than from its credit card business. Think about it. Credit cards charge interest, while debit cards may at best incur overdraft fees. That’s why the purchasing industry hated them! Visa took a lemon and turned it into lemonade. Last year, debit card swipe fees generated $7 billion.

How did it happen? According to the Justice Department, Visa achieved this goal through “exclusionary and anticompetitive means.” Much of this involved buying out potential competitors — companies like Apple Pay, PayPal and Square. The Justice Department’s complaint quotes Visa’s chief financial officer as saying: “Everyone is a friend and partner. Nobody is a competitor.” More from the Justice Department complaint:

Visa offers potential competitors lucrative incentives, sometimes worth hundreds of millions of dollars annually, on the express condition that they do not develop a competing product or compete in a way that could threaten Visa’s dominance. In addition to the carrot of these incentives, Visa also threatened to use a stick of additional fees to discourage potential competitors from innovating if they develop competing products.

The Dodd-Frank Law expanded the number of available networks by requiring banks to include at least two unrelated networks on each debit card. When this rule went into effect in 2012, Visa lost market share to other networks. To combat this, according to the Department of Justice, Visa has become really aggressive with rebates.