(Kitco News) – Despite what many in the ecosystem suggest, it’s not just the cryptocurrency industry that has drawn scrutiny from regulators in the U.S. as the Department of Justice (DOJ) has filed a civil antitrust lawsuit against global payments behemoth Visa, alleging “monopolization and other unlawful conduct in debit network markets in violation of Sections 1 and 2 of the Sherman Act.”
“Visa’s Exclusionary and Anticompetitive Conduct Undermines Choice and Innovation in Payments and Imposes Enormous Costs on Consumers, Merchants, and the American Economy,” the DOJ wrote in a press release.
The civil suit was filed in the U.S. District Court for the Southern District of New York and alleges that “Visa illegally maintains a monopoly over debit network markets by using its dominance to thwart the growth of its existing competitors and prevent others from developing new and innovative alternatives.”
The complaint details that more than 60% of debit transactions in the U.S. run on Visa’s debit network, allowing the company to charge more than $7 billion in fees each year to process those transactions.
The Delaware-based corporation, which is headquartered in San Francisco, has a global operating income of $18.8 billion and an operating margin of 64% in 2022. North America is among Visa’s most profitable regions, with the firm charging roughly $8 billion in network fees on U.S. debit volume annually. Globally, Visa processes $12.3 trillion in total payment volume.
Visa's alleged anticompetitive conduct began around 2012, as competing companies entered the payments space following reforms that required card issuers to accommodate unaffiliated networks, a senior Justice Department official said.
The DOJ 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,” the DOJ said. “These agreements penalize 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,” they added. “As the complaint alleges, Visa coopted the competition because it feared losing share, revenues, or being displaced by another debit network altogether.”
“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 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.”
Using debit cards is one of the most popular payment methods in the U.S., and Visa currently dominates debit network markets that facilitate these transactions, charging significant fees and stifling competition in the process.
The DOJ said the firm’s “systematic efforts to limit competition for debit transactions have resulted in billions of dollars in additional fees imposed on American consumers and businesses and slowed innovation in the debit payments ecosystem.”
The regulator filed the lawsuit in an effort to “restore competition to this vital market on behalf of the American public.”
“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.”
With Visa essentially controlling both sides of the debt market – serving merchants and their banks on one side and consumers and their banks on the other – 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,” the DOJ said.
Regarding smaller debit networks, the DOJ highlighted Visa’s practice of imposing “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,” they said. “Merchants cannot afford to use Visa’s smaller competitors for transactions where options do exist, even when those competitors offer lower per-transaction prices.”
For new-tech entrants to the market, Visa’s internal documents showed that the company was concerned 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,” the DOJ said. “As Visa’s then-CFO put it: ‘Everybody is a friend and partner. Nobody is a competitor.’”
“Anticompetitive conduct by corporations like Visa leaves the American people and our entire economy worse off,” said Principal Deputy Associate Attorney General Benjamin 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.”
