NEW YORK — The US Department of Justice filed an antitrust lawsuit against Visa, alleging that the financial services giant used its size and dominance to stifle competition in the debit card market, costing consumers and businesses billions of dollars.
The complaint filed Tuesday said San Francisco-based Visa penalized merchants and banks that did not use Visa’s own payment processing technology to process debit transactions, despite alternatives. Visa earns an additional fee from each transaction processed on the network.
According to the DOJ’s complaint, 60% of debit transactions in the United States use the Visa debit network, resulting in more than $7 billion in fees per year to process these transactions.
“We allege that Visa has unlawfully amassed power to extract fees that are far beyond what can be charged in the competitive market,” said Attorney General Merrick B. Garland in a statement. “Merchants and banks pass these costs on to consumers, by increasing prices or reducing quality or service. As a result, Visa’s illegal actions not only affect the price of goods – but the price of almost everything.
In a statement, Julie Rottenberg, Visa’s general counsel, said the lawsuit does not take into account “a growing company that offers new ways to pay for goods and services.”
“Today’s lawsuit ignores the fact that Visa is just one of many competitors in the debit space that is growing, with thriving entrants,” said Rottenberg. He added the lawsuit was “meritless” and the company would defend itself “vigorously”.
The Biden administration has aggressively gone after U.S. companies it says act like middlemen, such as Ticketmaster parent Live Nation and real estate software company RealPage, accusing them of burdening Americans with unreasonable fees and anticompetitive behavior. The government has also brought charges of monopolistic behavior against tech giants such as Apple and Google.
“In some of the Justice Department’s antitrust enforcement actions, the harm caused by illegal actions is more visible: higher prices for air travel, for concert tickets, for smartphones,” Garland said during a press conference in Washington on Tuesday. “The harmful effects of Visa’s anticompetitive actions are less visible, but no less harmful.”
According to the DOJ’s complaint, filed in the US District Court for the Southern District of New York, Visa used many transactions on its network to enforce volume commitments on merchants and banks, as well as on financial institutions that issue debit cards. . That makes it difficult for merchants to use alternatives, such as cheaper or smaller payment processors, than Visa’s payment processing technology, without incurring what the DOJ described as “disloyalty penalties” from Visa.
The DOJ said Visa also stifled competition by paying to enter into partnership agreements with potential competitors.
In 2020, the DOJ sued to block the company’s $5.3 billion purchase of financial technology startup Plaid, calling it a monopoly takeover from a potential competitor to the ubiquitous Visa payment network. The acquisition was eventually cancelled.
Visa previously announced the Justice Department was investigating the company in 2021, saying in a regulatory filing it was cooperating with the DOJ’s investigation into its debit practices.
Since the pandemic, more consumers around the world have shopped online for goods and services, which has translated into more revenue for Visa at a cost. Even traditional cash-based businesses like bars, barbershops and coffee shops have begun to accept credit or debit cards as a form of payment, often via smartphone.
KBW analyst Sanjay Sahrani said in a note to investors that he estimates that US debit revenue is likely to be at least about 10% of Visa revenue.
“Some of those subsets may be lost if there is a financial impact,” he said. “The US consumer payments business is the slowest part of the aggregate business, and if that contribution is affected, it may have a very limited impact on revenue growth.”
He added that the lawsuit could drag on for years if not settled and brought to trial.
Visa processed $3.325 trillion in transactions on its network during the quarter ending June 30, up 7.4% from a year earlier. US payrolls grew 5.1%, which was faster than US economic growth.
Visa shares fell $15.85, or 5.5%, to close at $272.94 on Tuesday.
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Associated Press writer Alanna Durkin Richer in Washington contributed to this report.
