Visa, which processes $12.3 trillion in total payment volume globally, has come in US Justice Department’s crosswire on Tuesday as it filed a civil antitrust lawsuit against the company for monopolisation and other unlawful conduct in debit network markets.
In a 71-page filing with the US District Court for the Southern District of New York, Justice Department found Visa in violation of Sections 1 and 2 of the Sherman Act.
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.
Visa faces monopoly allegations
The Department said more than 60 per cent of debit transactions in the United States run on Visa’s debit network, allowing it to charge over $7 billion in fees each year for processing those transactions.
Visa stock dropped more than 5 per cent on Tuesday, closing at $272.78, down $15.85 or 5.49 per cent.
The Justice Department alleged that Visa illegally maintains its monopoly power by insulating itself from competition. It wields its dominance, enormous scale, and centrality to the debit ecosystem to impose a web of exclusionary agreements on merchants and banks. These agreements penalise Visa’s customers who route transactions to a different debit network or alternative payment system. The company “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.
Attorney General Merrick B Garland said: “We allege that, to maintain this monopoly power, Visa deploys a web of unlawful, anticompetitive agreements to penalise merchants and banks for using competing payment networks.
“At the same time, it coerces would-be market entrants into unlawful agreements not to compete by threatening high fees if they do not cooperate and promising big payoffs if they do.
“The result is a debit market where Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market.”
Julie Rottenberg, Visa’s general counsel, responded to the lawsuit by saying that it ignored Visa’s “many competitors” in the growing debit space.
Rottenberg said: “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 added the lawsuit is “meritless” and the company will defend itself “vigorously”.
Debit transactions are an important and popular part of the US financial system. 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.
In a press release, the Justice Department added: “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.”
Benjamin C Mizer, Principal Deputy Associate Attorney General, commented: “Anticompetitive conduct by corporations like Visa leaves the American people and our entire economy worse off.
“Today’s action against Visa reminds those who would stifle competition rather than competing on price or investing in innovation that the Justice Department will never hesitate to enforce the law on behalf of the American people.”
The filing added that Visa maintains enormous scale on both sides of the debit market — with merchants and their banks and with consumers and their banks — and alleges that Visa’s exclusionary practices extend, deepen, and protect what it refers to as an “enormous moat” around its business.
It’s not the first time the Justice Department filed a civil antitrust lawsuit against Visa. In 2020, the company had to abandon a planned $5.3 billion acquisition of Plaid, a technology company that powers fintech apps.
Headquartered in San Francisco. The company has a global operating income of $18.8 billion and an operating margin of 64 per cent in 2022. In North America, which is its most profitable regions, it had an 83 percent operating margins that year.
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