NEW YORK — The United States Justice Department has launched an antitrust case against Visa, claiming that the financial services behemoth uses its size and dominance to hinder competition in the debit card market, costing consumers and companies billions of dollars.
According to the complaint filed on Tuesday, San Francisco-based Visa penalizes retailers and banks that do not use Visa’s own payment processing system to execute debit transactions, despite the availability of alternatives. Visa earns an additional fee for each transaction processed through its network.
According to the DOJ’s complaint, Visa’s debit network processes 60% of all transactions in the United States, allowing the company to earn more than $7 billion in fees each year.
“We allege that Visa has unlawfully amassed the power to extract fees far exceeding what it could charge in a competitive market,” said Attorney General Merrick B. Garland in a statement. “Merchants and banks pass on the expenses to customers, either by raising prices or lowering quality or service. As a result, Visa’s illegal behaviour affects not just one thing, but almost everything.”
Department Of Justice Sues Visa, Alleges The Card Issuer Monopolizes Debit Card Markets
According to Julie Rottenberg, Visa’s general counsel, the case fails to consider the “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,” Rottenberg told reporters. She went on to say that the case is “meritless” and that the corporation will defend itself “vigorously.”
The Biden administration has aggressively pursued U.S. corporations claiming to function as intermediaries, such as Ticketmaster parent Live Nation and real estate software company RealPage, accusing them of burdening Americans with absurd fees and anti-competitive behavior. The administration has also charged tech behemoths like Apple and Google with monopolistic behavior.
“In some of the Justice Department’s antitrust enforcement actions, the harm caused by the alleged illegal conduct is more visible: higher prices for air travel, concert tickets, and smartphones,” Garland stated during a news conference in Washington on Tuesday. “The harmful effects of Visa’s alleged anticompetitive conduct is less visible, but they are no less harmful.”
According to the DOJ case, filed in the United States District Court for the Southern District of New York, Visa uses the huge number of transactions on its network to impose volume commitments on merchants, their banks, and financial institutions that issue debit cards. This makes it difficult for merchants to employ alternatives to Visa’s payment processing technology, such as lower-cost or smaller payment processors, without facing what the DOJ described as “disloyalty penalties” from Visa.
The DOJ said that Visa also suppressed competition by paying to cooperate with potential competitors.
In 2020, the DOJ filed a lawsuit to prohibit the company’s $5.3 billion acquisition of financial technology startup Plaid, claiming it was a monopolistic takeover of a prospective competitor to Visa’s omnipresent payment network. That acquisition was later called off.
Visa previously revealed that the Justice Department was investigating the business in 2021, stating in a regulatory filing that it was participating in the DOJ probe into its debit operations.
Department Of Justice Sues Visa, Alleges The Card Issuer Monopolizes Debit Card Markets
Since the epidemic, more consumers worldwide have been purchasing online products and services, resulting in increased revenue for Visa in the form of fees. Even historically cash-heavy establishments such as pubs, barbershops, and coffee shops have begun to accept credit or debit cards as payment, typically through cellphones.
In a note to investors, KBW analyst Sanjay Sahrani estimated that U.S. debit revenue is likely to account for only approximately 10% of Visa revenue.
“Some subset of that may be lost if there is a financial impact,” he indicated. Visa said: “U.S. consumer payments business is the slowest growing piece of the aggregate business, and to the extent its contribution is affected, it is likely to have a very limited impact on revenue growth.”
He also stated that if the lawsuit is not settled and goes to trial, it may last years.
During the quarter ending June 30, Visa handled $3.325 trillion in transactions on its network, a 7.4% increase over the previous year. U.S. payments increased by 5.1%, outpacing U.S. GDP growth.
Visa stock lost $15.85, or 5.5%, to end at $272.94 on Tuesday.
SOURCE | AP
