Visa shares fall 5% as feds sue over alleged debit card monopoly

Visa shares fell more than 5% after the U.S. Department of Justice filed an antitrust lawsuit against the company on Tuesday, alleging it illegally monopolized the debit card market by depriving banks and businesses of choice and limiting competition from new entrants.

More than 60% of the more than $4 trillion in debit transactions that occur in the U.S. each year are routed to Visa’s electronic payments network, Attorney General Merrick B. Garland said at a news conference Tuesday afternoon. The Justice Department has accused Visa of using that leverage to implement a web of anticompetitive agreements that punish merchants and banks for using competing payment networks.

The department also said Visa was threatening new entrants with hefty fees if they didn’t cooperate. One Visa executive allegedly said the company had the Square storefront, which also operates a digital wallet called Cash App, “on a tight leash.”

“We allege that Visa has unlawfully amassed the authority to charge fees that far exceed what it could charge in a competitive marketplace,” Garland said. “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.”

Visa general counsel Julie Rottenberg called the lawsuit “meritless” and said the company will vigorously defend itself.

“Today’s lawsuit ignores the fact that Visa is just one of many competitors in the debit space, which is growing, with new players thriving,” she said in a statement. “When businesses and consumers choose Visa, it’s because of our secure and reliable network, world-class fraud protection and the value we provide. We’re proud of the payments network we’ve built, the innovation we’re driving and the economic opportunities we’re enabling.”

Americans use debit cards more than any other payment method and more than twice as much as credit cards, according to data from the Federal Reserve. Younger and less affluent Americans tend to rely on them especially, said Ben Mizer, the department’s principal deputy assistant attorney general.

“When merchants raise prices to cover Visa’s exorbitant fees,” he said, “the burden of Visa’s anticompetitive conduct falls disproportionately on Americans who are less affluent and who suffer the consequences of high prices the most.”

Biden Administration Continues Antitrust Offensive

Visa and rival Mastercard, which settled separate enforcement proceedings last year by the U.S. Federal Trade Commission, have amassed a combined market capitalization of about $1 trillion. Both companies are the epitome of the “middlemen” that the Justice Department has increasingly targeted in industries ranging from real estate to health care. In May, the department and several states filed a lawsuit seeking to break up Ticketmaster’s parent company, Live Nation.

The Visa lawsuit is also part of a broader antitrust offensive by the Justice Department under President Biden that has intensified in the final year of his term. The Justice Department scored a historic victory in August when a federal judge ruled that Google illegally monopolized the search market, its first major antitrust victory over Big Tech in more than two decades.

After Bloomberg first reports of the lawsuit against Visa on Monday, several analysts said investors shouldn’t panic. The case should take years to work its way through the courts, they noted, if it goes to trial at all.

Despite all this, investors clearly did not welcome the news.

This story was originally published on Fortune.com