The U.S. Justice Department has filed an antitrust lawsuit against Visa, alleging that the financial giant uses its dominance to hinder competition in the debit card market, leading to billions of dollars in extra costs for consumers and businesses.
The lawsuit filed in the Southern District of New York, claims that Visa penalizes merchants and banks for using alternative payment processors, forcing them to rely on Visa’s payment processing technology. This has allowed Visa to maintain its dominance, with 60% of debit transactions in the U.S. running through its network, resulting in over $7 billion in annual fees.
In its complaint, the DOJ alleges that Visa’s pricing structures, such as volume discounts and exclusivity agreements, make it difficult for smaller rivals to compete. Visa is also accused of entering into partnerships with fintech companies like PayPal and Square to further block competition. The DOJ highlighted Visa’s internal strategy to “neutralize” fintech competitors, viewing companies like Apple Pay as existential threats to its debit card dominance.
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Part of the lawsuit reads,
“Visa maintains its dominant position not by competing on a level playing field but by insulating itself from competition through exclusionary and anticompetitive means. Visa uses its size, scale, and centrality to the debit transaction ecosystem to penalize those who would switch to a different debit network or to companies that could develop alternative debit products. It uses its dominance to limit the growth of existing competitors and to deter others from developing new and innovative alternatives.
“Visa profits from its monopoly by collecting a higher fraction of each debit transaction than it would if it faced competition. Visa’s schemes are largely invisible to consumers, in part because its debit transaction fees make up a relatively small fraction of each transaction, but total billions of dollars annually. Collectively, however, Visa’s systematic efforts to limit competition for debit transactions have resulted in significant additional fees imposed on American consumers and businesses and slowed innovation in the debit payments ecosystem.
“As Visa’s internal documents make clear, Visa feared a future where newer, better, or cheaper alternatives would force Visa to compete harder to win customers’ business or, worse. Without intervention, Visa will continue to insulate itself from the competition and subvert the competitive process in this essential industry that fuels U.S., commerce. Visa offers a modern-day Hobson’s choice. Visa leverages its control over non-contestable transactions and extracts routing deals that limit competition for contestable transactions.”
The lawsuit further adds that Visa’s conduct subverts the competitive process which deprives smaller rivals of the scale they need to compete effectively on both price and quality.
American lawyer and jurist, Merrick Garland stated that Visa’s actions allow it to extract fees far higher than what could be charged in a competitive market. These increased costs are ultimately passed on to consumers in the form of higher prices or reduced services. Garland emphasized that the impact of Visa’s conduct affects the cost of “nearly everything” that Americans purchase.
In his words,
“We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market. 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 responded to the lawsuit, calling it “meritless” and vowing to defend itself. Julie Rottenberg, Visa’s general counsel, argued that the company is one of many competitors in the growing debit space, emphasizing the value and security Visa provides to businesses and consumers.
“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”, she added.
The lawsuit is part of a broader effort by the Biden administration to tackle monopolistic behavior, with the DOJ pursuing similar actions against other major companies like Apple and Google.