The U.S. Department of Justice (DOJ) has filed a civil antitrust lawsuit Tuesday against Visa for monopolization and other unlawful conduct in debit network markets in violation of Sections 1 and 2 of the Sherman Act.
Filed in the U.S. District Court for the Southern District of New York, the complaint 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.
According to the complaint, more than 60% of debit transactions in the United States run on Visa’s debit network, allowing it to charge more than $7 billion in fees each year for processing those transactions.
The complaint further 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--including convenience stores--and banks. 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. As the complaint alleges, Visa co-opted 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.”
Debit transactions are an important and popular part of the U.S. financial system, the DOJ said. Millions of Americans prefer or must use debit for online and in-person purchases. Visa dominates debit network markets that facilitate these transactions, charging significant fees and stifling competition in the process. Visa’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.
Through this lawsuit, the Justice Department “seeks to restore competition to this vital market on behalf of the American public,” it said.
Visa maintains enormous scale on both sides of the debit market—with merchants and their banks and with consumers and their banks—and 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.
Visa uses leverage based on the large number of transactions that must run over Visa’s payment rails to impose 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. Merchants cannot afford to use Visa’s smaller competitors for transactions where options do exist, even when those competitors offer lower per-transaction prices.
As Visa’s internal documents make clear, the DOJ said, Visa feared 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. As Visa’s then-CFO put it: “Everybody is a friend and partner. Nobody is a competitor.”
In response to a request for comment on the DOJ action, Julie Rottenberg, Visa’s general counsel, told CSP, “Anyone who has bought something online or checked out at a store knows there is an ever-expanding universe of companies offering new ways to pay for goods and services. Today's lawsuit ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving. When businesses and consumers choose Visa, it is because of our secure and reliable network, world-class fraud protection and the value we provide. We are proud of the payments network we have built, the innovation we advance, and the economic opportunity we enable. This lawsuit is meritless, and we will defend ourselves vigorously.”
The Merchants Payments Coalition (MPC) welcomed lawsuit against Visa. “This is further evidence that Visa has regularly blocked competition in the debit card market,” MPC Executive Committee member and National Association of Convenience Stores (NACS) General Counsel Doug Kantor said. “Visa has relentlessly flouted the law to maintain a monopoly over setting fees for transactions made with cards issued under its brand and for processing those transactions. While this case is focused on debit cards, it shows how we desperately need competition over credit card swipe fees, which currently face no competition at all.”
San Francisco-based Visa Inc. 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 2022 operating margins of 83%. Visa charges roughly $8 billion in network fees on U.S. debit volume annually. Globally, Visa processes $12.3 trillion in total payment volume.
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