US accuses Visa of debit card monopoly

The U.S. Department of Justice has initiated a lawsuit against Visa, accusing the financial giant of unlawfully suppressing competition to maintain its dominance in the debit card market. The lawsuit alleges that Visa has taken punitive actions against companies seeking to use alternative payment networks and has financially incentivized potential competitors to prevent them from entering the market.

According to the Justice Department, these practices have not only hindered innovation but also resulted in substantial additional fees for American consumers and businesses. Visa has responded by calling the allegations “meritless” and pledging to vigorously defend itself in court. Julie Rottenberg, Visa’s general counsel, stated that businesses and consumers prefer Visa for its “secure and reliable network,” arguing that the lawsuit overlooks the competitive nature of the growing debit space.

The lawsuit against Visa marks another significant move by the Biden administration to address monopoly concerns, commonly referred to as antitrust issues in the U.S. This administration has adopted a more aggressive stance compared to its predecessors, aiming to tackle practices perceived as anti-competitive. Visa’s business practices have also attracted lawsuits and scrutiny from merchants and competition regulators globally, particularly in Europe and Australia.

The Department of Justice began its investigation into Visa in 2021, leading to the current legal action. The complaint highlights that Visa processes over 60% of debit transactions in the U.S., generating approximately $7 billion in fees each year. As of 2022, Visa’s debit card segment was reported to be more lucrative than its credit card business.

Attorney General Merrick Garland emphasized that Visa’s market dominance enables it to impose fees significantly higher than those that would prevail in a competitive market. He noted, “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.”

Following the announcement of the lawsuit, Visa’s shares fell by more than 5%. The complaint, filed in federal court in New York, alleges that Visa established a “web of contracts” compelling businesses to commit a certain volume of transactions to the Visa network or face elevated fees. This practice is described as creating illegal “exclusive deals.”

The lawsuit indicates that Visa began implementing such agreements after the introduction of a 2012 law intended to enhance competition in the debit market. This law mandated that banks enable debit cards to operate on at least two competing payment networks. The Justice Department claims that Visa exploited its market power to impose significant fees on tech companies like PayPal, coercing them into deals that required routing payments through Visa.

The government is seeking a court ruling that would classify Visa as a monopoly and prevent it from continuing its alleged anti-competitive practices. George Alan Hay, a professor at Cornell Law School specializing in antitrust law, noted that while the case is not particularly radical, it could still pose challenges for the government. One key issue will be defining the debit card market and determining whether Visa’s 60% market share constitutes monopoly power.

“It’s going to be difficult,” Hay remarked, adding that Visa, having faced regulatory scrutiny for many years, likely anticipated legal challenges while structuring its fee agreements. “They’re going to have answers,” he said. “It’s not like this is sprung on them by surprise.”

As the legal battle unfolds, the implications of the lawsuit could have significant effects not only on Visa but also on the broader payment processing landscape. The outcome may reshape how payment networks operate and influence the costs borne by consumers and businesses alike. With heightened regulatory focus on monopolistic practices, this lawsuit is a clear indication of the U.S. government’s intent to foster greater competition in the financial services sector.