US Justice Department Sues Visa for Alleged Monopoly in Debit Payment Processing

The U.S. Justice Department on Tuesday initiated a legal action against Visa, the largest payments network globally, for allegedly maintaining an illegal monopoly over debit payments. The complaint, filed in New York, accuses Visa of imposing "exclusionary" agreements on its partners and stifling emerging firms, thereby resulting in billions of dollars in extra fees for American consumers and merchants.

Allegations of Monopolization and Unlawful Conduct

In its civil antitrust suit, the DOJ charged Visa with "monopolization" and other unlawful conduct. Attorney General Merrick Garland stated, "We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market." Garland emphasized that Visa's illegal activities have repercussions beyond one specific sector, ultimately affecting the cost of numerous goods and services.

Visa's Dominance in the Market

Visa and its smaller competitor, Mastercard, have experienced significant growth over the past two decades, achieving a combined market capitalization of approximately $1 trillion. This expansion is attributed to consumers increasingly utilizing credit and debit cards for purchases instead of cash. Visa currently processes over 60% of debit transactions in the U.S., collecting over $7 billion annually in processing fees.

Regulatory Scrutiny and Legal Challenges

The dominance of Visa and Mastercard in the payment networks industry has attracted scrutiny from regulators and retailers, leading to several legal challenges. In 2020, the DOJ filed an antitrust lawsuit to block Visa's acquisition of fintech company Plaid. Subsequently, Visa and Mastercard agreed to limit their fees and permit merchants to charge customers for using credit cards, a deal valued at $30 billion in savings over five years. However, a federal judge later rejected the settlement, asserting that the networks could afford to provide a "substantially greater" deal.

Exclusionary Agreements and Market Barriers

The DOJ's complaint alleges that Visa employs exclusionary agreements to protect its grip on the debit market. It threatens merchants and banks with punitive rates if they redirect a "meaningful share" of debit transactions to competitors, effectively insulating three-quarters of Visa's debit volume from fair competition. These agreements are designed to maintain Visa's network moat and limit the ability of rival networks to gain a foothold in the market.

Strangling Competition and Innovation

Furthermore, Visa allegedly engages in practices to stifle competition and suppress innovation. The DOJ claims that Visa pays competitors hundreds of millions of dollars annually to mitigate the risk of them developing innovative technologies that could challenge Visa's monopoly profits. This strategy aims to deter the emergence of potential rivals and maintain Visa's dominant position in the market.

Collaboration with Technology Giants

The complaint also highlights Visa's agreements with prominent technology companies, including Apple, PayPal, and Square. These partnerships reportedly transform potential competitors into allies in a manner detrimental to the public's interest. For instance, Visa allegedly entered into an agreement with a predecessor to the Cash App product to limit its competitive threat to Visa's debit network. Similarly, Visa's agreement with Apple allegedly prevents the tech giant from directly competing with the payment network.

Request for Court Intervention

The DOJ has requested the courts to prohibit Visa from engaging in various anticompetitive practices, including fee structures or service bundles that hinder new entrants into the market. This legal maneuver comes during the final months of President Joe Biden's administration, which has seen regulators, including the Federal Trade Commission and the Consumer Financial Protection Bureau, taking legal action against middlemen for drug prices and opposing so-called junk fees.

Strengthening Competition in the Payments Industry

In a significant development, Capital One announced its acquisition of Discover Financial, a $35.3 billion deal aimed at enhancing Discover's payments network, which currently ranks fourth behind Visa, Mastercard, and American Express. Capital One intends to shift its debit card volume and an increasing portion of credit card volume to Discover after the deal's closure, thereby bolstering Discover's competitiveness against Visa and Mastercard.