Exclusionary conduct has been a key to Visa’s success.
The Antitrust Division of the Justice Department filed a civil antitrust lawsuit against Visa Inc. in the Southern District of New York yesterday for illegal monopolization of the U.S. debit network market (U.S. v. Visa Inc., No. 1:24-cv-7214, S.D.N.Y.).
The case finally addresses this important question: Since developments in telecommunications and digital security have now advanced to the point that innumerable fintechs are capable of carrying consumer payment transactions cheaply, safely, and efficiently, why does almost $14 trillion in transactions still stubbornly traverse Visa’s payment networks each year?
One reason, according to the government’s antitrust lawsuit, is practices and policies by Visa that foreclose competition from rival debit networks. The suit alleges that Visa offers its customers discounts for exclusive routing and for high transaction volumes which effectively sequesters business from rival networks.
It is likely that the government will be able to establish that Visa’s continued high debit transaction volumes are due, at least in significant part, to its exclusionary practices rather than winning business through competition on the merits, in which case the government has a good chance of success.
The complaint alleges Visa’s actions violate Sherman Act, which prohibits agreements that restrain trade (Section 1) and monopolistic practices (Section 2).
DOJ alleges Visa’s exclusionary and anticompetitive conduct also includes:
1. Entering into contracts with merchants, acquirers, and issuers that inhibit competition: These contracts include penalties, cliff pricing terms, and volume commitments that make it difficult for competitors to challenge Visa’s dominance.
2. Leveraging its control over non-contestable transactions: Visa uses its control over these transactions to demand exclusivity and penalize those who do not comply.
3. Paying potential competitors not to develop or promote competitive products: Visa offers financial incentives to companies like Apple, PayPal, and Square to prevent them from creating or supporting alternatives to Visa’s debit network.
4. Stifling innovation: Visa’s actions have delayed or deterred the development of fintech network services and other innovative payment methods that could compete with Visa.
5. Imposing supracompetitive prices: Visa’s conduct has led to higher fees for merchants and consumers, stabilizing prices, and depressing price competition.
Visa is dominant on both sides of the debit market, with merchants and their banks and with consumers and their banks. The company’s practices extend, deepen, and protect what it refers to as an “enormous moat” around its business. When faced with competition from smaller debit networks or fintech startups, Visa acts aggressively to cut them off.
In announcing the suit, DOJ noted that in 2020 it sued to stop Visa from acquiring Plaid, a technology company that “powers fintech apps developing disruptive options for online debit payments.” The companies abandoned their planned $5.3 billion merger, DOJ added.
Underscoring Visa’s enormity, the government note that it has a global operating income of $18.8 billion and with a 2022 operating margin of 64%. In North America, its 2022 operating margins were 83%.
_____________________________________
Other financial industry posts:
DOJ: Visa/Plaid Deal Would be Bad for Online Debit Market
Why the Capital One-Discover Merger Makes Sense by Jonathan Rubin
Second Circuit Affirms $5.6B Settlement of Antitrust Claims in Merchants’ Credit Card Fee Case by Jonathan Rubin
Appeals Court Affirms ATM Operators’ Class Certification in Antitrust Case Against Visa and Mastercard (press release)
Use of contact information for soliciting is strictly prohibited.