The US Department of Justice filed a lawsuit against Visa accusing it of monopolizing the debit payment market and abusing its dominant position in order to crush any potential competitors. In a civil complaint filed in Manhattan Federal Court on Tuesday, the plaintiff alleged that the company behind US’s largest payments network “insulates themselves from competition” by imposing “webs of exclusionary agreement” on banks and merchants which penalize customers whose transactions go through different networks.
Merrick Garland, US Attorney-General, said: “We claim that Visa unlawfully accumulated the power to charge fees that are far in excess of what they could charge on a market that is competitive.” Visa called the suit “meritless” it said that there is “an ever expanding universe of companies that offer new ways of paying for goods and service” and that “the DoJ case ignores the reality that Visa, as one of many competitors within a growing debit space”, is not a valid lawsuit.
Visa’s debit network processes more than 60% of all debit transactions in the US. This dominant position allows Visa to charge processing fees in excess of $7bn annually. Debit cards are typically issued by banks and allow users to withdraw funds directly from their checking accounts. Payment companies like Visa facilitate this transfer.
Garland continued, “Merchants or banks will pass on those costs to the consumer by increasing prices or reducing service quality.” Visa’s illegal conduct has affected not only the price of a single thing, but also the price for nearly everything. Doha Mekki is the principal assistant attorney general at the antitrust division of the DoJ. She said that Visa is “a financial network we cannot escape but do not see”.
She added that the dominance of the company was threatened in early 2010 by “two competitive threats”, referring to the law passed by Congress requiring debit cards to have at least two routing choices, as well as the growth of fintech rivals such Apple Pay, Square, and PayPal.
According to the lawsuit, Visa considered Apple Pay a “existential risk” due to its current scale among consumers and merchants. A Visa executive said “we have Square on a leash” after signing the first Square contract in 2014.
The DoJ stated that Visa had built an “enormous pond” around its business through its relationships with both the banks issuing cards and retailers who accept them. DoJ claims that the company suppressed competition by offering “generous financial incentives” or threatening to impose penalties on potential competitors.
Prosecutors said that the company would regularly enter into contracts with banks and merchants offering significant discounts for routing a certain amount of transactions through Visa’s network. The DoJ claims that the volume floor set by the group forces merchants to choose Visa almost exclusively, even when rivals offer significantly lower prices per transaction.
“Everyone is a partner and friend.” “Nobody is a rival,” stated an unnamed former Visa Chief Financial Officer quoted in the complaint. The only thing left to do is figure out how we can make them want to work with us. Visa shares closed 5.5% lower on Tuesday.
Over the years, the company has been threatened with legal action. In 2020, the DoJ filed a civil antitrust suit to stop Visa’s acquisition by Plaid. Both companies eventually abandoned the $5.3bn deal.
Visa’s rivals have also been scrutinised by antitrust agencies. Mastercard reached a settlement with the US Federal Trade Commission last year to settle allegations that it illegally forced retailers to accept debit card payments through its payment network.
Visa and Mastercard in an earlier settlement agreed that they would cut the swipe fees charged to retailers. The merchants claimed this deal would save them 30bn dollars over the next five years. However, the agreement was rejected by a judge.
The Joe Biden administration has adopted stricter antitrust laws in order to correct decades of lax enforcement.
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