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The US Department of Justice has filed an antitrust lawsuit accusing Visa of monopolising the market for debit payments and using its dominant position to crush potential competitors.
The civil complaint filed on Tuesday in Manhattan federal court alleged the company behind the US’s biggest payments network “insulates itself from competition” in the debit market by imposing a “web of exclusionary agreements” on merchants and banks that penalise customers whose transactions are routed through different networks.
“We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market,” US attorney-general Merrick Garland said.
Visa called the lawsuit “meritless”. It said there was “an ever-expanding universe of companies offering new ways to pay for goods and services” and that the DoJ case “ignores the reality that Visa is just one of many competitors in a debit space that is growing”.
More than 60 per cent of debit transactions in the US are completed on Visa’s debit network — a dominant position that allows it to charge more than $7bn in processing fees annually, the complaint said. Debit cards, typically issued by banks, allow users to draw funds directly from their chequing accounts, and payments companies such as Visa facilitate the transfer.
“Merchants and banks pass along those costs to consumers, either by raising prices or reducing quality or service,” Garland added. “As a result, Visa’s unlawful conduct affects not just the price of one thing — but the price of nearly everything.”
Visa is a “financial network we do not see but cannot escape,” said Doha Mekki, the principal deputy assistant attorney-general at the DoJ’s antitrust division.
Its dominance was threatened by “twin competitive threats” in the early 2010s, she added, pointing to a law passed by Congress that required debit cards to include at least two routing options, and the rise of fintech competitors such as PayPal, Square and Apple Pay.
Visa deemed Apple Pay an “existential threat” given its existing scale with consumers and merchants, according to the complaint. After signing the first contract with Square in 2014, a Visa executive was quoted as saying “we’ve got Square on a short leash”, the lawsuit said.
Visa has built what it describes as an “enormous moat” around its business, both through its relationship with the banks that issue cards and the retailers that accept them, the DoJ said. The company stifled competition by co-opting potential rivals through partnerships that offered “generous monetary incentives”, or by threatening to impose punishing fees, the DoJ alleged.
For instance, the company regularly enters into contracts with merchants and banks that offer significant bulk discounts if they routed a certain volume of transactions over Visa’s network, prosecutors said.
The DoJ alleges the volume floors that the group set essentially force merchants to almost always choose Visa, even if rivals offered significantly lower prices on a per-transaction basis.
“[E]verybody is a friend and partner. Nobody is a competitor,” said an unnamed former Visa chief financial officer quoted in the complaint. “The only issue is to figure out how to make it worth their while to partner with us.”
Visa shares closed 5.5 per cent lower on Tuesday.
The company has faced legal threats over the years. The DoJ in 2020 filed a civil antitrust lawsuit to block Visa’s acquisition of tech company Plaid. The businesses ultimately abandoned the $5.3bn merger.
Antitrust agencies have also scrutinised Visa’s competitors. Mastercard last year reached an agreement with the US Federal Trade Commission to settle charges that it illegally forced merchants to direct debit card payments via its payment network.
Visa and Mastercard earlier this year agreed to cut the so-called swipe fees they charge retailers in a legal settlement that merchants said would save them $30bn over five years, but the deal was later rejected by a federal judge.
Progressive antitrust officials in the Joe Biden administration have adopted tougher antitrust policies in an attempt to course correct what they have described as decades of lax enforcement.
Additional reporting by Stephen Gandel and Joshua Franklin in New York.
