US Justice Department Alleges Visa Monopolises Debit Card Market in Antitrust Lawsuit

The US Justice Department has initiated an antitrust lawsuit against Visa, accusing the company of using its market dominance to hinder competition in the debit card sector. This action, filed on Tuesday, claims that Visa's practices result in billions of dollars in costs for consumers and businesses. The lawsuit highlights Visa's penalties on merchants and banks that opt for alternative payment processing technologies instead of Visa's own system.

Visa processes 60% of debit transactions in the US, earning over USD 7 billion annually in fees. Attorney General Merrick B. Garland stated, "We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market." He added that these costs are passed on to consumers through higher prices or reduced quality and service.

Visa's Response and Market Competition

Julie Rottenberg, Visa's general counsel, responded by saying the lawsuit overlooks the "ever-expanding universe of companies offering new ways to pay for goods and services." She described the lawsuit as "meritless" and assured that Visa would defend itself "vigorously." Rottenberg emphasized that Visa is just one among many competitors in a growing debit space.

The Biden administration has been targeting companies perceived as middlemen, such as Ticketmaster parent Live Nation and RealPage, for imposing unnecessary fees and engaging in anticompetitive behaviour. Similar charges have been brought against tech giants like Apple and Google for monopolistic practices.

DOJ's Allegations Against Visa

The DOJ complaint, filed in the Southern District of New York, accuses Visa of leveraging its transaction volume to impose commitments on merchants and banks. This makes it challenging for them to use alternative processors without facing "disloyalty penalties" from Visa. The DOJ also claims Visa stifles competition by forming partnerships with potential competitors.

In 2020, the DOJ blocked Visa's USD 5.3 billion acquisition of fintech startup Plaid, labelling it a monopolistic move. The acquisition was eventually abandoned. In 2021, Visa disclosed its cooperation with a DOJ investigation into its debit practices.

Impact on Visa's Business

The pandemic has increased online shopping, boosting Visa's revenue through fees. Even cash-heavy businesses now accept cards via smartphones. KBW analyst Sanjay Sahrani estimates US debit revenue forms about 10% of Visa's total revenue. He noted any financial impact from the lawsuit would likely have a limited effect on revenue growth.

Visa processed USD 3.325 trillion in transactions during the quarter ending June 30, marking a 7.4% increase from the previous year. US payments grew by 5.1%, outpacing economic growth. However, Visa shares fell $15.85 or 5.5%, closing at $272.94 on Tuesday.

Sahrani mentioned that if unresolved, the lawsuit could extend over several years before reaching a trial or settlement.