NEW YORK — The U.S. Justice Department has filed an antitrust lawsuit against Visa, alleging that the financial services behemoth uses its size and dominance to stifle competition in the debit card market, costing consumers and businesses billions of dollars.
The complaint filed Tuesday says Visa penalizes merchants and banks who don’t use Visa’s own payment processing technology to process debit transactions, even though alternatives exist. Visa earns an incremental fee from every transaction processed on its network.
According to the DOJ’s complaint, 60% of debit transactions in the United States run on Visa’s debit network, allowing it to charge over $7 billion in fees each year for processing those transactions.
“We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market,” said Attorney General Merrick B. Garland in a statement. “Merchants and banks pass along those costs to consumers, either 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 nearly everything.”
The Biden administration has aggressively gone after U.S. companies that it says act like middlemen, such as Ticketmaster parent Live Nation and the real estate software company RealPage, accusing them of burdening Americans with nonsensical fees and anticompetitive behavior. The administration has also brought charges of monopolistic behavior against technology giants such as Apple and Google.
According to the DOJ complaint, filed in the U.S. District Court for the Southern District of New York, 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. That makes it difficult for merchants to use alternatives, such as lower-cost or smaller payment processors, instead of Visa’s payment processing technology, without incurring what DOJ described as “disloyalty penalties” from Visa.
The DOJ said Visa also stifled competition by paying to enter into partnership agreements with potential competitors.
In 2020, the DOJ sued to block the company’s $5.3 billion purchase of financial technology startup Plaid, calling it a monopolistic takeover of a potential competitor to Visa’s ubiquitous payments network. That acquisition was eventually later called off.
Visa previously disclosed the Justice Department was investigating the company in 2021, saying in a regulatory filing it was cooperating with a DOJ investigation into its debit practices.
Since the pandemic, more consumers globally have been shopping online for goods and services, which has translated 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.
KBW analyst Sanjay Sahrani said in a note to investors that he estimates that U.S. debit revenue is likely at most about 10% of Visa revenue.
“Some subset of that may be lost if there is a financial impact,” he said. Visa’s “U.S. consumer payments business is the slowest growing piece of the aggregate business, and to the extent its contribution is affected, it is likely to have a very limited impact on revenue growth.”
He added the lawsuit could stretch out for years if it isn’t settled and goes to trial.
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, based in San Francisco, did not immediately have a comment. Visa shares fell $13.53, or 4.7%, to $275.10 in afternoon trading.
The Department of Justice recently filed a lawsuit against Visa, one of the largest payment processing companies in the world, for allegedly monopolizing the debit card market. The lawsuit, which was filed in federal court, accuses Visa of engaging in anti-competitive practices that have stifled competition and harmed consumers.
According to the Department of Justice, Visa has used its dominant position in the debit card market to impose anti-competitive rules on merchants and limit their ability to steer customers towards cheaper forms of payment. The lawsuit alleges that Visa has prevented merchants from offering discounts or incentives to customers who use alternative payment methods, such as cash or competing debit cards.
In addition, the Department of Justice claims that Visa has imposed excessive fees on merchants for processing debit card transactions, further limiting competition in the market. These fees are ultimately passed on to consumers in the form of higher prices for goods and services.
The lawsuit seeks to hold Visa accountable for its alleged anti-competitive behavior and seeks to restore competition in the debit card market. If successful, the lawsuit could result in significant changes to the way Visa operates and could lead to lower prices for consumers.
Visa has denied the allegations made in the lawsuit and has vowed to vigorously defend itself in court. The company maintains that it operates in a competitive market and that its practices are in compliance with antitrust laws.
This lawsuit is just the latest in a series of legal challenges faced by Visa and other payment processing companies in recent years. As technology continues to evolve and new players enter the market, regulators are increasingly scrutinizing the practices of established companies like Visa to ensure that competition is not being stifled.
In conclusion, the lawsuit filed by the Department of Justice against Visa for alleged monopolization of the debit card market highlights the importance of maintaining a competitive marketplace for consumers. It remains to be seen how this legal battle will unfold, but one thing is clear: the outcome could have far-reaching implications for the future of the payment processing industry.
