Justin Sullivan | etty Pictures
The USA Ministry of Justice on Tuesday he sued Visathe world’s largest payments network, saying it fostered an illegal monopoly in debit payments by imposing “lock-out” agreements on partners and stifling start-ups.
Visa’s moves over the years have resulted in American consumers and merchants paying billions of dollars in additional fees, according to the DOJ, which filed a lawsuit in New York alleging “monopolization” and other illegal conduct.
“We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market,” Attorney General Merrick Garland said in a DOJ statement.
“Merchants and banks pass that cost on to consumers, either by raising prices or by reducing quality or service,” Garland said. “As a result, Visa’s illegal behavior affects not just the price of one thing — but the price of almost everything.”
Visa and its smaller rival MasterCard have soared over the past two decades, reaching a combined market cap of about $1 trillion, as consumers used credit and debit cards for in-store and e-commerce purchases instead of paper money. They are essentially toll collectors, mixing payments between banks that work for merchants and for cardholders.
Visa called the DOJ’s suit “unworthy.”
“Anyone who’s bought anything online or checked out in a store knows there’s an ever-expanding universe of companies offering new ways to pay for goods and services,” said Visa General Counsel Julie Rothenberg.
“Today’s lawsuit ignores the reality that Visa is just one of many competitors in a growing debit space with prosperous entrants,” Rothenberg said. “We’re proud of the payment network we’ve built, the innovation we’re promoting and the financial opportunity we’re providing.”
More than 60% of debit transactions in the U.S. go through Visa rails, helping them rack up more than $7 billion a year in processing fees, according to the DOJ complaint.
The decades-long dominance of payment networks is increasingly attracting the attention of regulators and retailers.
Litany of woes
In 2020, the DOJ filed antitrust lawsuit to block Visa from acquiring fintech firm Plaid; The companies initially said they would fight the energy, but soon abandoned the $5.3 billion acquisition.
In March, Visa and Mastercard agreed to limit their fees and let merchants charge customers for using credit cards, a deal that retailers said would save them $30 billion over half a decade. Federal judge later was rejected the settlement, saying the networks could afford to pay for a “substantially larger” deal.
In its complaint, the Justice Department said Visa threatens merchants and their banks with punitive interest rates if they funnel a “significant share” of debit transactions to competitors, helping maintain Visa’s network. The contracts help insulate three-quarters of Visa’s billing volume from fair competition, the DOJ said.
“Visa is using its dominance, sheer scale, and centrality in the billing ecosystem to impose a web of blocking agreements on merchants and banks,” the DOJ said in its statement. “These agreements penalize Visa customers who route transactions to a different billing network or alternative payment system.”
Additionally, when faced with threats, Visa “engaged in a deliberate and reinforcing course of conduct to cut off competition and prevent rivals from gaining the scale, share and data needed to compete,” the DOJ said.
Paying competitors
The moves also limited innovation, according to the DOJ. Visa pays competitors hundreds of millions of dollars annually “to mitigate the risk of developing innovative new technologies that could advance the industry but otherwise threaten Visa’s monopoly profits,” according to the complaint.
Visa has deals with technology players including Apple, PayPal and Squareturning them from potential adversaries to partners in a way that harms the public, the DOJ said.
For example, Visa chose to sign a deal with a predecessor of the Cash App product to ensure that the company, later renamed Block, did not pose a greater threat to Visa’s debit rails.
According to the complaint, a Visa executive said “we have Square on a short leash and our transaction structure was intended to protect against disintermediation.”
Visa has entered into an agreement with Apple in which the tech giant says it will not directly compete with the payment network “such as creating payment functionality that relies primarily on non-Visa payment processes,” the complaint alleges.
The Justice Department asked the courts to bar Visa from a range of anticompetitive practices, including fee structures or service bundles that discourage new entrants.
The move comes in the final months of President Joe Biden’s administration, in which regulators including the Federal Trade Commission and the Consumer Financial Protection Bureau have sued middlemen over drug prices and pushed back on so-called junk fees.
In February, credit card lender Capital One announced its acquisition Discover Financiala $35.3 billion deal based in part on Capital One’s ability to bolster Discover’s also-ran payments network, a distant No. 4 behind Visa, Mastercard and American Express.
Capital One said that once the deal closes, it will shift all of its debit card volume and an increasing share of its credit card volume to Discover over time, making it a more viable competitor to Visa and Mastercard.
