The Department of Justice (DOJ) recently filed an antitrust lawsuit against Visa Inc. The DOJ alleges the company has monopolistic powers that they have been using to exclude competitors, squash innovation and maintain market dominance.
According to the lawsuit, Visa is responsible for the largest number of debit card transactions in the U.S., processing over 60% of all debit transactions and extracting over $7 billion per year in transaction fees. This lawsuit highlights one of the most essential parts of modern life that often flies under the radar — debit transactions.
If the allegations are proven to be true, and Visa has been engaging in market exclusionary activity, the prices of practically everything would have been raised as a result. This is because debit transactions affect nearly every part of the economy.
“Visa maintains its dominant position not by competing on a level playing field but by insulating itself from competition through exclusionary and anticompetitive means,” the lawsuit reads.
The crux of this lawsuit is that Visa has allegedly been entering into contract agreements with various parties that ensure that it is one of the few debit transaction networks — using punishments and incentives to keep companies in line.
“While Visa’s contracts with merchants and acquirers include varying pricing terms, one almost universal constant is that the routing contracts contain significant volume commitments,” the lawsuit reads.
These volume commitments make it so companies who accept Visa transactions have to direct the vast majority of their transactions to Visa as opposed to a competitor. If the company doesn’t do this, Visa will charge higher fees to the company.
Visa also provides incentives to companies that accept their transactions. According to the lawsuit, one large incentive is when Visa bundles its services with other companies — like credit card companies — making it difficult for companies to switch to another debit transaction network.
Since the Durbin Amendment, a regulatory law that forced debit card issuers to include multiple networks on each debit card, Visa has been engaging in various actions to reduce the competition that would ensue from multiple debit networks on one debit card.
One method is gathering large amounts of debit transactions that Visa owns completely, meaning competition isn’t an option. This also means that companies cannot avoid going through Visa and are forced to make a choice.
“The merchant has only two choices: either (1) agree to exclusivity with Visa or (2) pay Visa’s supracompetitive rack rates,” the lawsuit reads.
Along with making companies use them exclusively, Visa also incentivizes banks to keep as many other networks off debit cards as possible. By doing both these things Visa has effectively mitigated the Durbin Amendment.
Visa also allegedly stifles innovation. The lawsuit claims Visa has entered into contracts with potential competitors — like PayPal or Apple’s Wallet app — to require them not to create innovations that would reduce their market share.
“The price of not signing a contract is high —Visa imposes onerous penalties. Those high penalties ensure that virtually all these merchants, acquirers, issuers, and digital platforms choose the deal with Visa,” the lawsuit reads.
The DOJ seeks to ban Visa from continuing these incentive and disincentive structures that crush competition. This effectively demands that the company allow full competition and only be able to fight competitors through quality of service.
Visa has yet to issue any official response to these allegations.
