US sues Visa alleging card issuer monopolises debit card markets
24 September 2024, 20:14
Analysts say the case could stretch out for years if it is not settled and goes to trial.
The US justice department has filed an anti-trust legal case against Visa, alleging that the financial services behemoth uses its size and dominance to stifle competition in the debit card market, costing consumers and businesses billions of dollars.
The complaint filed on Tuesday says Visa penalises merchants and banks who do not use Visa’s own payment processing technology to process debit transactions, even though alternatives exist.
Visa earns an incremental fee from every transaction processed on its network.
According to the department’s complaint, 60% of debit transactions in the US run on Visa’s debit network, allowing it to charge over seven billion dollars in fees each year for processing those transactions.
“We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market,” said Attorney General Merrick B Garland in a statement.
“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.”
The Biden administration has aggressively gone after US companies that it says act like middlemen, such as Ticketmaster parent Live Nation and the real estate software company RealPage, accusing them of burdening Americans with non-sensical fees and anticompetitive behaviour.
The administration has also brought charges of monopolistic behaviour against technology giants such as Apple and Google.
According to the complaint, filed in the US District Court for the Southern District of New York, Visa leverages the vast number of transactions on its network to impose volume commitments on merchants and their banks, as well as on financial institutions that issue debit cards.
That makes it difficult for merchants to use alternatives, such as lower-cost or smaller payment processors, instead of Visa’s payment processing technology, without incurring what the department described as “disloyalty penalties” from Visa.
The department said Visa also stifled competition by paying to enter into partnership agreements with potential competitors.
In 2020, the department sued to block the company’s 5.3 billion dollar purchase of financial technology start-up Plaid, calling it a monopolistic takeover of a potential competitor to Visa’s ubiquitous payments network. That acquisition was eventually later called off.
Visa previously disclosed the justice department was investigating the company in 2021, saying in a regulatory filing it was co-operating with an investigation by the department into its debit practices.
Since the pandemic, more consumers globally have been shopping online for goods and services, which has translated into more revenue for Visa in the form of fees.
Even traditionally cash-heavy businesses like bars, barbers and coffee shops have started accepting credit or debit cards as a form of payment, often via smartphones.
KBW analyst Sanjay Sahrani said in a note to investors that he estimates that US debit revenue is likely at most about 10% of Visa revenue.
“Some subset of that may be lost if there is a financial impact,” he said. “Visa’s US 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 added the case could stretch out for years if it is not settled and goes to trial.
