Visa Sued By US DOJ Over Debit Card Dominance

• The U.S. Justice Department has filed an antitrust lawsuit against Visa, alleging it suppresses competition in the debit card market.
• The complaint reveals that 60% of U.S. debit transactions are processed on Visa’s network, allowing it to charge over $7 billion in annual fees.
• Attorney General Merrick B. Garland stated that Visa’s dominance allows it to extract fees that exceed what could be charged in a competitive market.
• The lawsuit could reshape the financial services industry and set a precedent for future antitrust cases, similar to the Microsoft cases in the late 1990s and early 2000s.

In a significant development that could reshape the financial services landscape, the U.S. Justice Department has launched an antitrust lawsuit against Visa. The lawsuit alleges that the financial services giant has been using its size and dominance to suppress competition in the debit card market, leading to billions of dollars in costs for consumers and businesses.

The lawsuit, filed on Tuesday in the U.S. District Court for the Southern District of New York, accuses Visa of penalizing merchants and banks that opt not to use Visa’s proprietary payment processing technology for debit transactions. This is despite the existence of alternative processing technologies. Visa, the complaint alleges, earns an additional fee from every transaction processed on its network.

The Justice Department’s complaint reveals that 60% of debit transactions in the United States are processed on Visa’s debit network. This dominance allows Visa to charge over $7 billion in fees annually for processing these transactions.

Visa’s Dominance and Its Impact

Attorney General Merrick B. Garland stated, “We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market.” He further explained that these costs are passed on to consumers by merchants and banks, either through increased prices or reduced quality or service. “As a result, Visa’s unlawful conduct affects not just the price of one thing – but the price of nearly everything,” Garland added.

This lawsuit is part of the Biden administration’s aggressive stance against U.S. companies that it perceives as acting like middlemen, such as Ticketmaster parent Live Nation and real estate software company RealPage. These companies are accused of burdening Americans with unnecessary fees and engaging in anti-competitive behavior. The administration has also brought charges of monopolistic behavior against technology giants like Apple and Google.

The complaint further alleges that Visa leverages the vast number of transactions on its network to impose volume commitments on merchants and their banks, as well as on financial institutions that issue debit cards. This makes it challenging for merchants to use alternatives, such as lower-cost or smaller payment processors, instead of Visa’s payment processing technology, without incurring what the DOJ described as “disloyalty penalties” from Visa.

DOJ’s Accusations and Visa’s Response

The DOJ also accused Visa of stifling competition by entering into partnership agreements with potential competitors. In 2020, the DOJ sued to block Visa’s $5.3 billion acquisition of financial technology startup Plaid, labeling it a monopolistic takeover of a potential competitor to Visa’s ubiquitous payments network. The acquisition was eventually called off.

Visa had previously disclosed in 2021 that the Justice Department was investigating the company, stating in a regulatory filing that it was cooperating with a DOJ investigation into its debit practices.

The pandemic has led to a surge in online shopping for goods and services, translating into more revenue for Visa in the form of fees. Even traditionally cash-heavy businesses like bars, barbers, and coffee shops have started accepting credit or debit cards as a form of payment, often via smartphones.

Visa processed $3.325 trillion in transactions on its network during the quarter ended June 30, up 7.4% from a year earlier. U.S. payments grew by 5.1%, which is faster than U.S. economic growth. Visa, headquartered in San Francisco, has not yet commented on the lawsuit.

In conclusion, this lawsuit against Visa is reminiscent of the antitrust cases filed against Microsoft in the late 1990s and early 2000s. In those cases, Microsoft was accused of using its dominance in the operating system market to stifle competition and maintain its monopoly. The cases resulted in significant changes to Microsoft’s business practices and had far-reaching implications for the tech industry. The current lawsuit against Visa could similarly reshape the financial services industry and set a precedent for future antitrust cases.