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The US Department of Justice sued on Tuesday visathe world's largest payments network, saying it was supporting an illegal monopoly on debit payments by imposing “exclusion agreements” on partners and stifling emerging businesses.
Visa's years-long actions resulted in American consumers and merchants paying billions of dollars in additional fees, according to the U.S. Department of Justice, which filed a civil antitrust lawsuit in New York alleging “monopolization” and other illegal conduct.
“We allege that Visa has unlawfully amassed the power to charge fees that far exceed what it could charge in a competitive market,” Attorney General Merrick Garland said in a Justice Department press release.
“Merchants and banks pass these costs on to consumers, either by raising prices or by degrading quality or service,” Garland said. “As a result, Visa's unlawful conduct affects not just the price of one thing, but the price of almost everything.”
Visa and its smaller rival MasterCard have skyrocketed over the past two decades, reaching a combined market capitalization of around $1 trillion as consumers began using credit and debit cards instead of paper money to make in-store and e-commerce purchases. They are essentially toll collectors that process payments between banks that serve the merchants and the cardholders.
Visa called the Justice Department’s lawsuit “without merit.”
“Anyone who has ever purchased something online or paid for something in a store knows that there are an increasing number of companies offering new ways to pay for goods and services,” said Julie Rottenberg, general counsel at Visa.
“Today's lawsuit ignores the fact that Visa is just one of many competitors in a growing debit market where new entrants are increasingly emerging,” Rottenberg said. “We are proud of the payments network we have built, the innovation we are driving and the economic opportunities we are enabling.”
More than 60 percent of all debit transactions in the United States are processed through Visa, which helps the company collect more than $7 billion in processing fees annually, according to the U.S. Department of Justice lawsuit.
The decades-long dominance of payment networks has increasingly attracted the attention of regulators and retailers.
Litany of suffering
In 2020, the U.S. Department of Justice filed an antitrust lawsuit to block Visa from acquiring fintech company Plaid. The companies initially said they would fight the lawsuit, but soon abandoned the $5.3 billion acquisition.
In March, Visa and Mastercard agreed to cap their fees and allow merchants to charge fees for credit card use. The retailers said the deal would save them $30 billion over five years. A federal judge later rejected the settlement, saying the networks could afford a “substantially higher” deal.
In its complaint, the Justice Department said Visa threatened merchants and their banks with penalty fees if they routed a “significant portion” of debit transactions to competitors, which helped preserve Visa's competitive advantage in the network. The contracts would protect three-quarters of Visa's debit volume from fair competition, the Justice Department said.
““Visa leverages its dominance, massive size and central position in the debit ecosystem to impose a web of exclusion agreements on merchants and banks,” the Justice Department's press release said. “These agreements penalize Visa customers who transact through another debit network or alternative payment system.”
In addition, in light of the threats, Visa “engaged in deliberate and escalating conduct designed to eliminate competition and prevent competitors from obtaining the scale, market share, and data necessary to compete,” the Justice Department said.
Pay off competitors
According to the Justice Department, these measures have also hampered innovation. Visa pays its competitors hundreds of millions of dollars annually “to mitigate the risk that they will develop innovative new technologies that could advance the industry but would otherwise jeopardize Visa's monopoly profits,” the lawsuit states.
Visa has agreements with technology companies, including Apple, PayPal And squareand thus turned them from potential rivals into partners in a way that was detrimental to the public, the Justice Department said.
For example, Visa decided to sign an agreement with a predecessor of its Cash App product to ensure that the company, later renamed Block, did not pose a major threat to Visa's debit rails.
A Visa executive was quoted as saying, “We keep Square on a short leash and our contract structure is designed to protect against disintermediation,” the complaint states.
Visa has an agreement with Apple in which the technology giant states that it will not compete directly with the payment network, “such as by creating payment features that rely primarily on payment processes from providers other than Visa,” the lawsuit says.
The US Department of Justice asked the courts to prohibit Visa from engaging in a number of anti-competitive practices, including fee structures or service packages that deter new market entrants.
The move comes in the final months of President Joe Biden's administration, during which regulators such as the Federal Trade Commission and the Consumer Financial Protection Bureau have sued middlemen over drug pricing and pushed back against so-called junk fees.
In February, credit card provider Capital One announced the acquisition of Discover Financiala $35.3 billion deal that relies in part on Capital One’s ability to strengthen Discover’s payments network, which ranks fourth behind Visa, Mastercard and American Express.
Capital One said that after the transaction closes, the company will transfer all of its debit card volume and a growing share of its credit card volume to Discover over time, making it a more serious competitor to Visa and Mastercard.
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