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The U.S. Department of Justice filed a lawsuit on Tuesday. VisaGoogle, the world's largest payments network, has been accused of supporting an illegal monopoly on debit payments by imposing “exclusionary” agreements on partners and stifling startups.
Visa's moves over the years have cost American consumers and merchants billions of dollars in additional fees, according to the Justice Department, which filed a civil antitrust lawsuit in New York alleging “monopoly” and other illegal conduct.
“We allege that Visa unlawfully amassed the power to extract fees far in excess of what it could charge in a competitive marketplace,” Attorney General Merrick Garland said in a statement from the Justice Department.
“Merchants and banks pass these costs on to consumers, either by raising prices or reducing quality or service,” Garland said. “As a result, Visa’s illegal behavior doesn’t just affect the price of one thing — it affects the price of almost everything.”
Visa and its smaller rival MasterCard Digital banks have seen a sharp rise over the past two decades, with a combined market value of nearly $1 trillion, as consumers use credit and debit cards instead of cash for in-store and e-commerce purchases. They are essentially fee collectors, exchanging payments between merchant banks and cardholders.
Visa called the Justice Department's lawsuit “baseless.”
“Anyone who has bought something online, or paid for it in a store, knows that there is a growing world of companies offering new ways to pay for goods and services,” said Julie Rotenberg, general counsel at Visa.
“The lawsuit we filed today ignores the fact that Visa is just one of many competitors in an ever-growing electronic payments space, with new companies entering and thriving,” Rotenberg said. “We are proud of the payments network we have built, the innovation we are developing, and the economic opportunity we are creating.”
More than 60% of debit transactions in the United States go through Visa lines, helping it charge more than $7 billion a year in processing fees, according to the Justice Department complaint.
The decades-long dominance of payment networks has attracted increasing attention from regulators and retailers.
Hymn of Misfortune
In 2020, the Justice Department sued Visa to block its acquisition of fintech company Plaid. The two companies initially said they would fight the move, but they quickly abandoned the $5.3 billion acquisition.
In March, Visa and Mastercard agreed to cut their fees and allow merchants to charge customers for using their credit cards, a deal that retailers said would be worth $30 billion in savings over half a decade. A federal judge later rejected the settlement, saying the companies could afford a “much larger” deal.
In its complaint, the Justice Department said Visa threatens merchants and their banks with punitive rates if they direct a “significant share” of direct debit transactions to competitors, helping to maintain Visa’s network moat. The contracts help insulate three-quarters of Visa’s direct debit transaction volume from fair competition, the Justice Department said.
“Visa exploits its dominance, massive size, and centrality in the electronic payments ecosystem to impose a web of exclusionary agreements on merchants and banks,” the Justice Department said in a statement. “These agreements impose penalties on Visa customers who direct transactions to a different debit network or alternative payment system.”
Moreover, when faced with threats, “Visa engaged in a deliberate and reinforcing course of conduct to cut off competition and prevent competitors from gaining the scale, share, and data needed to compete,” the Justice Department said.
Paying money to competitors
The moves also stifle innovation, according to the Justice Department. Visa pays competitors hundreds of millions of dollars a year “to reduce the risk that they will develop innovative new technologies that could advance the industry but could threaten Visa’s monopoly profits,” according to the complaint.
Visa has agreements with technology companies including: apple, Paypal and squareThe Justice Department said this turned them from potential competitors into partners in a way that harmed the public.
For example, Visa chose to sign an agreement with the predecessor company to the Cash App product to ensure that the company, which was later rebranded as Block, would not create a greater threat to Visa's debit lines.
“We put Square under tight control and our deal structure was designed to protect against middlemen,” a Visa executive was quoted as saying, according to the complaint.
According to the complaint, Visa has an agreement with Apple that states the tech giant will not compete directly with the payment network “such as by creating payment functionality that relies primarily on non-Visa payment processes.”
The Justice Department has asked courts to bar Visa from a range of anticompetitive practices, including fee structures or service bundles that discourage new entrants.
The move comes in the final months of President Joe Biden’s administration, as regulators including the Federal Trade Commission and the Consumer Financial Protection Bureau have been prosecuting drug price brokers and cracking down on so-called unsolicited fees.
In February, credit card lender Capital One announced its acquisition of Discover Financea $35.3 billion deal that hinges in part on Capital One's ability to enhance the payments network operated by Discover, which ranks fourth behind Visa and Mastercard. American Express.
Capital One said that once the deal closes, it will shift all of its debit card volume and an increasing share of credit card volume to Discover over time, making it a more viable competitor to Visa and Mastercard.
