DOJ accuses Visa of monopoly that affects the price of ‘almost everything’

The USA Ministry of Justice charged on Tuesday VisaThe world’s largest payments network says it maintains an illegal monopoly on debit payments by imposing “exclusion agreements” on partners and stifling start-ups.

Visa’s moves over the years have resulted in U.S. consumers and merchants paying billions of dollars in additional fees, according to the DOJ, which filed a civil antitrust lawsuit in New York alleging “monopolization” and other unlawful conduct.

“We allege that Visa has unlawfully amassed the power to collect fees far in excess of what it could charge in a competitive market,” Attorney General Merrick Garland said in a DOJ press release.

“Merchants and banks pass these costs on to consumers, either by raising prices or reducing quality or service,” Garland said. “As a result, Visa’s unlawful conduct affects not just the price of one thing, but the price of almost everything.”

Visa and its smaller rival MasterCard have soared over the past two decades, reaching a combined market capitalization of roughly $1 trillion, as consumers turned to credit and debit cards instead of paper money for retail purchases and e-commerce. They are essentially toll collectors, shuffling payments between banks that operate for merchants and cardholders.

Visa called the DOJ lawsuit “deserved.”

“Anyone who has bought something online or paid in a store knows that there is an ever-expanding universe of companies offering new ways to pay for goods and services,” said Julie Rottenberg, general counsel of Visa.

“Today’s lawsuit ignores the reality that Visa is just one of many competitors in an ever-expanding debit industry, with flourishing new entrants,” Rottenberg said. “We are proud of the payments network we have built, the innovation we foster and the economic opportunity we enable.”

More than 60% of debit transactions in the U.S. pass through Visa rails, charging the country more than $7 billion in processing fees annually, according to the DOJ complaint.

The decades-long dominance of payment networks has increasingly attracted the attention of regulators and retailers.

In 2020, the DOJ filed an antitrust lawsuit to prevent Visa from acquiring fintech company Plaid. The companies initially said they would contest the action, but quickly dropped the $5.3 billion takeover.

In March, Visa and Mastercard agreed to cap their fees and charge merchants for using credit cards, a deal that retailers said was worth $30 billion in savings over half a decade. Later a federal judge rejected the settlement, saying the networks could afford to pay for a “substantially larger” deal.

In its complaint, the DOJ alleges that Visa threatens merchants and their banks with punitive fees if they forward a “meaningful” share of debit transactions to competitors, thus perpetuating Visa’s network moat. The contracts help protect three-quarters of Visa’s debit volume from fair competition, the DOJ said.

“Visa uses its dominance, massive scale and central position in the debit ecosystem to impose a web of exclusionary agreements on merchants and banks,” the DOJ said in its press release. “These agreements penalize Visa customers who route transactions to another debit network or alternative. payment system.”

Furthermore, when faced with threats, Visa “took a deliberate and reinforcing course of action to foreclose competition and prevent rivals from gaining the scale, share, and data necessary to compete,” the DOJ said .

According to the DOJ, the measures have also slowed innovation. Visa pays competitors hundreds of millions of dollars annually “to mitigate the risk that they will develop innovative new technologies that could advance the industry but would otherwise threaten Visa’s monopoly profits,” the complaint said.

Visa has agreements with technology players, among others Apple, PayPal And Squareturning them from potential rivals into partners in a way that harms the public, the DOJ said.

For example, Visa chose to sign an agreement with a predecessor to its Cash App product to ensure that the company, later renamed Block, would not pose a greater threat to Visa’s debit rails.

A Visa executive said, “We have Square on a short leash and our deal structure was intended to protect against disintermediation,” according to the complaint.

Visa has an agreement with Apple in which the tech giant says it will not compete directly with the payment network “such as creating payment functionality that relies primarily on non-Visa payment processes,” the complaint alleged.

The DOJ asked the courts to bar Visa from a range of anticompetitive practices, including fee structures or service bundles that discourage new entrants.

The move comes in the final months of President Joe Biden’s administration, during which regulators including the Federal Trade Commission and the Consumer Financial Protection Bureau have sued brokers over drug prices and pushed back against so-called junk fees.

In February, credit card provider Capital One announced the acquisition of Discover financiala $35.3 billion deal based in part on Capital One’s ability to strengthen Discover’s also-operated payments network, a distant No. 4 behind Visa, Mastercard and American Express.

Capital One said that once the deal closes, it will transition all of its debit card volume and a growing portion of credit card volume to Discover over time, making it a more viable competitor to Visa and Mastercard.