The US Justice Department went after Visa (V) on Tuesday in a federal antitrust lawsuit alleging that the company illegally used the scale of its vast card processing network to block competition.
Visa owns and controls the largest debit card processing network in the US, which processes more than 60% of the nation’s debit card transactions.
According to the DOJ, Visa leveraged its ecosystem of consumers, banks, and merchants to penalize merchants for choosing an alternate debit network.
“Collectively … 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,” the complaint said.
According to the DOJ, Visa fashioned a “web of contracts” with major banks and merchants that required merchants to choose Visa’s network or pay higher fees to Visa for sales transactions.
In 2022, Visa debit processing fees drove $7 billion in revenue for the company. Visa stock dropped more than 5% Tuesday.
US Attorney General Merrick Garland said Visa's illegal conduct discouraged potential rivals, particularly fintech companies like Square's CashApp, from entering the debit processing market.
"While Visa is the first name many debit card users see when they take out their card to make a purchase, they do not see the role that Visa plays behind the scenes," Garland said.
"There, it controls a complex network of merchants, financial institutions, and consumers ... It is charging a hidden toll on each of trillions of transactions, adding up to billions of dollars of fees imposed annually on American consumers and businesses."
Specifically, the DOJ said Visa illegally held on to monopolies in two markets: the debit network services market, which is used to withdraw funds directly out of a consumer’s bank account, and the card-not-present debit network services market.
The latter is a narrower market within the broader services market that includes traditional debit card transactions, as well as fintech transactions.
Visa’s general counsel, Julie Rottenberg, responded to the lawsuit by saying that it ignored Visa’s “many competitors” in the growing debit space.
“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,” Rottenberg said.
Alden Abbott, a Mercatus Center research fellow and former general counsel for the US Federal Trade Commission, said the Visa case is unique for an antitrust case in that the Dodd-Frank Act set a cap on debit card fees.
Any antitrust analysis of Visa’s arrangements should take the law’s impact into account, Abbott said, because it may have discouraged rivals from entering the market, weakened then-existing rivals, and led to fewer poorer Americans having debit cards.
"It is certainly possible that Visa’s growing debit card market share is due to this statutory price cap, rather than anti-competitive actions by Visa," Abbott said.
The DOJ is asking for the federal district court in Manhattan to block Visa from using the allegedly harmful contracts and to block it from bundling credit services or credit incentives with debit network services.
It also asked for the court to stop Visa from imposing pricing incentives for use of its network.
Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.
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