Visa faces lawsuit from justice department over claims of market monopolisation

The US Department of Justice filed a lawsuit on Tuesday, September 24, accusing Visa of using illegal means to stifle competition and punish companies that plan to use alternative networks. The DOJ accuses Visa of paying off potential competitors to maintain its monopoly over the debit card market. According to the lawsuit, Visa’s illegal antics have slowed down innovations in the sector while increasing additional fees that American consumers and businesses pay for debit card services.

Investigations began in 2021

The competition lawsuit filed by the US DOJ is the latest Visa faces after dealing with similar accusations from merchants and regulators in Europe, Australia, and other parts of the world. According to reports, investigations began in 2021, but Visa’s illegal practices traced back to 2012 when a new law was introduced to boost competition in the sector. The new law required banks to make debit cards usable on two or more competing payment networks. This law meant Visa and any other monopoly would have guaranteed competition.

The Biden administration has recently taken a more aggressive direction against monopolies dubbed the US antitrust laws. Despite changes, Visa continues to dominate the market and now faces accusations of using illegal practices to make sure competitors always have the short end of the stick. According to the DOJ, Visa used its dominance to threaten PayPal with significant fees if the peer-to-peer transaction service provider failed to route payments through the firm. What the DOJ is asking for is to have the courts declare Visa a monopoly and prevent the firm from pursuing further anti-competitive practices.

Visa downplays new lawsuit, calls it meritless

DOJ’s competition lawsuit was filed in the New York federal court claiming Visa had used a “web of exclusionary contracts” to force businesses to commit to routing a percentage of transactions to the Visa network. If businesses failed to comply, they would face higher fees. The lawsuit cites this practice and such “exclusive deals” as illegal. However, Visa maintains the claims are meritless and is determined to defend itself vigorously in court. A statement from the network’s general counsel Julie Rottenberg insists consumers choose Visa because it is secure and reliable.

The statement also says the lawsuit ignores the many competitors in a growing debit card space where other providers are thriving. These points are hard to ignore given consumers can use MasterCard, Maestro, Discover, American Express, and many other debit cards. Law experts believe the lawsuit, while not radical, faces challenges like defining the debit card market and whether Visa’s cited 60% share constitutes a monopoly. Visa has also faced scrutiny from regulators for many years and most likely considered possible litigation when structuring contracts and fees.

How Visa’s practices affect consumers

The modern consumer can also access several payment methods, including eWallets, cryptocurrencies, mobile payment methods, and prepaid cards. Merchants, banks, online businesses, and entertainment providers like casinos and bookmakers offer all these options to their customers. For cases such as online gambling, players can navigate fees by choosing payment methods or casino platforms that don’t charge transaction fees.

As pointed out in the lawsuit, Visa processes over 60% of debit card transactions in the US, totaling $7 billion in annual fees. The US Attorney General Merrick Garland said the network’s dominance has allowed it to fetch fees higher than what would be possible in a competitive market. Online businesses, banks, and merchants pass these fees and costs to consumers by raising prices or offering lower-quality services. If that’s the case, Visa’s illegal practices affect the prices of nearly all commodities while stifling innovations in the debit card market.

Visa shares fall following new lawsuit

Visa shares dropped by more than 7% after the civil antitrust lawsuit accused them of monopolisation and Sherman Antitrust Act violations. Mastercard stock also dropped by 2%. Meanwhile, Discover Financial rose by 3% and American Express by 1.5%. The DOJ has had some success with its lawsuits against Visa after successfully halting a merger between the network and technology startup Plaid in 2021. Visa quickly scrapped the $5.3 billion deal leading the DOJ to drop their lawsuit. The DOJ also successfully sued Google for antitrust violations.

Back in March, a group of merchants agreed to settle with Visa and Mastercard for $30 billion as the two major firms sought to end the decades-long antitrust battle. However, a federal judge rejected the settlement three months later, calling the credit card companies to make more concessions. This decision came after the National Retail Foundation trade group successfully fought to block the settlement, citing it as too little. Although Visa has promised to fight the lawsuit and emerge victorious, the network will have to deal with immediate reactions to the new suit. Nonetheless, experts predict these events won’t have a long-term impact.

What’s next for consumers and investors?

Visa and Mastercard remain the top debit card providers in the market and enjoy a combined monopoly of 86%. As expected, plummeting stocks are the immediate reaction to DOJ lawsuits. However, some investors see these sell-offs as opportunities for buy-ins and expect Visa stocks to rise soon. The network has had one of the most consistent stocks in the market and boasts a year-to-date growth of about 4% since 2010. Nonetheless, everything remains in the hands of the attorneys and judges, at least for the moment.