Visa is once again in the firing line of the Justice Department as the US administrator files a civil antitrust lawsuit against the payments processor. Visa has been accused of maintaining a monopoly over debit network markets in violation of Sections 1 and 2 of the Sherman Act.
In 2020, the Justice Department filed a civil antitrust lawsuit to stop Visa from acquiring Plaid, a technology company that powers fintech apps developing disruptive options for online debit payments. The companies abandoned their planned $5.3billion merger. Four years on, Visa has now been accused of using its dominance in the payments market to stamp out the growth of existing competitors in the market and prevent others from developing new solutions and alternatives.
Attorney General Merrick B. Garland
“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. “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 complaint
Filed in the US District Court for the Southern District of New York, the complaint explains that more than 60 per cent of debit transactions in the United States run on Visa’s debit network. As a result, it can charge over $7billion in fees each year for processing those transactions.
The complaint further alleges that Visa illegally maintains its monopoly power by insulating itself from competition. For example, Visa wields its dominance, enormous scale, and centrality to the debit ecosystem to impose a web of exclusionary agreements on merchants and banks. These agreements penalise Visa’s customers who route transactions to a different debit network or alternative payment system.
In so doing, the complaint alleges, Visa locks up debit volume, insulates itself from competition, and smothers smaller, lower-priced competitors. Visa also induces would-be competitors to become partners instead of entering the market as competitors by offering generous monetary incentives and threatening punitive additional fees. As the complaint alleges, Visa coopted the competition because it feared losing share, revenues, or being displaced by another debit network altogether.
Debit transactions are an important and popular part of the US financial system. Millions of Americans prefer or must use debit for online and in-person purchases. Visa dominates debit network markets that facilitate these transactions, charging significant fees and stifling competition in the process.
Visa’s systematic efforts to limit competition for debit transactions have resulted in billions of dollars in additional fees imposed on American consumers and businesses. Consequently, this has slowed innovation in the debit payments ecosystem.
Through this lawsuit, the Justice Department seeks to restore competition to this vital market on behalf of the American public.
Preventing competition
Visa maintains enormous scale on both sides of the debit market — with merchants and their banks and with consumers and their banks — and the complaint alleges that Visa’s exclusionary practices extend, deepen, and protect what it refers to as an “enormous moat” around its business.
When faced with the possibility that smaller debit networks or new technology entrants would threaten that position, Visa engaged in a deliberate and reinforcing course of conduct to cut off competition and prevent rivals from gaining the scale, share, and data necessary to compete for customers’ business:
Smaller debit networks
Visa uses leverage based on the large number of transactions that must run over Visa’s payment rails to impose expansive volume commitments on merchants and their banks, as well as on financial institutions that issue debit cards. These agreements are priced so that, unless all or nearly all debit volume runs over Visa’s payment rails, large disloyalty penalties can be imposed on all Visa transactions. Merchants cannot afford to use Visa’s smaller competitors for transactions where options do exist, even when those competitors offer lower per-transaction prices.
Tech entrants
As Visa’s internal documents make clear, Visa feared that some technology companies and fintech startups with ‘network ambitions’ would cut Visa out as the middleman between merchants, consumers, and their banks by offering a better or cheaper payment product. Visa aimed to stop that development by entering into agreements to pay potential competitors to partner instead of innovating. As Visa’s then-CFO put it: “Everybody is a friend and partner. Nobody is a competitor.”
Ensuring a fair market
Principal Deputy Associate Attorney General Benjamin C. Mizer
“Anticompetitive conduct by corporations like Visa leaves the American people and our entire economy worse off,” said Principal Deputy Associate Attorney General Benjamin C. Mizer. “Today’s action against Visa reminds those who would stifle competition rather than competing on price or investing in innovation that the Justice Department will never hesitate to enforce the law on behalf of the American people.”
Principal Deputy Assistant Attorney General Doha Mekki of the Justice Department’s Antitrust Division
“Visa fears competition and innovation, and instead chooses unlawful cooperation and monopolization,” said Principal Deputy Assistant Attorney General Doha Mekki of the Justice Department’s Antitrust Division. “Visa abuses its power over its customers and buys off would-be rivals at the expense of American consumers, merchants, banks, and the competitive process itself. Today’s lawsuit holds Visa accountable for its conduct in a market that forms the backbone of American commerce.”
Impacting day-to-day lives
Garland added: “The lawsuit against Visa is only the latest example of the Justice Department’s work to enforce the antitrust laws and hold accountable companies that undermine competition and harm the American people.
“In some of the Justice Department’s antitrust enforcement actions, the harm caused by the alleged illegal conduct is more visible — higher prices for air travel, for concert tickets, for smartphones.
“The harmful effects of Visa’s alleged anticompetitive conduct are less visible. But they are no less harmful.
“While ‘Visa’ is the first name many debit card users see when they take out their card to make a purchase, they do not see the role that Visa plays behind the scenes. There, it controls a complex network of merchants, financial institutions, and consumers.
“What the Justice Department sees — and what we allege in this lawsuit — is that Visa is a monopolist that is distorting the marketplace for debit transactions.”
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