The lawsuit claims firm's exclusionary tactics inflate fees for consumers and merchants nationwide
The US Justice Department (DOJ) sued Visa on Tuesday, accusing the payment giant of maintaining an illegal monopoly over debit payments, as per CNBC.
The DOJ claims Visa imposed ‘exclusionary’ agreements on partners and stifled competition, resulting in billions of dollars in additional fees for American consumers and merchants.
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 added, “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.”
Visa and its rival Mastercard have seen significant growth over the past two decades, reaching a combined market cap of around $1tn. They have become integral in processing payments, acting as intermediaries between banks and merchants.
In response to the lawsuit, Visa called the claims ‘meritless.’ Visa general counsel Julie Rottenberg argued, “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.”
She continued, “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.”
According to the DOJ complaint, Visa processes over 60 percent of debit transactions in the US, collecting more than $7bn annually in processing fees.
The DOJ's scrutiny of the payment networks has intensified, especially following a failed attempt by Visa to acquire fintech company Plaid for $5.3bn in 2020.
The DOJ outlined how Visa allegedly threatens merchants and banks with punitive rates if they direct debit transactions to competitors. The complaint asserts that these practices insulate three-quarters of Visa’s debit volume from fair competition.
The DOJ stated, “Visa wields its dominance, enormous scale, and centrality to the debit ecosystem to impose a web of exclusionary agreements on merchants and banks.” These agreements reportedly penalize customers who attempt to route transactions to alternative payment systems.
The DOJ also highlighted that Visa has stifled innovation by paying competitors hundreds of millions of dollars each year to prevent the development of technologies that could challenge its market position.
The complaint mentions that Visa has agreements with tech companies such as Apple, PayPal, and Square, transforming potential rivals into partners in a manner detrimental to public interest.
The DOJ seeks to prevent Visa from engaging in various anticompetitive practices, including fee structures and service bundles that deter new entrants into the market.
This legal action coincides with an ongoing trend in the Biden administration to scrutinize and challenge monopolistic practices across different sectors.
In February, Capital One announced plans to acquire Discover Financial for $35.3bn, aiming to enhance Discover’s payment network, which currently ranks behind Visa, Mastercard, and American Express.
Once completed, Capital One intends to shift its debit and credit card volumes to Discover, potentially bolstering competition against the dominant networks.
