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US: Government launches antitrust action against payment company Visa

The U.S. Justice Department has filed an antitrust lawsuit against Visa, accusing the company of maintaining a monopoly on debit cards.

The U.S. Justice Department accuses Visa of maintaining a monopoly in the debit card market. The government says the company limits competition and charges high fees to merchants.

The US Department of Justice has filed an antitrust complaint against Visa, accusing the company of maintaining a monopoly on the debit card market by limiting competition and imposing excessive fees on merchants. The US government’s action is part of a series of numerous lawsuits filed by the Biden administration against large companies, aimed at curbing monopolistic behavior and strengthening antitrust enforcement, writes the New York Times.

It is important to note that across the Atlantic, debit cards differ from credit cards. Indeed, payment with the former is directly debited from the user’s bank account. While for the latter, a ceiling is allocated by the bank that the cardholder must repay each month on a specific date.

De facto exclusive agreements :

According to the government, Visa has entered into de facto exclusive agreements with banks and merchants, encouraging them to process the majority of their transactions through its payment network.  These deals are backed by threats of higher fees if merchants choose to use other payment networks to process their debit card transactions.

The practice allegedly limited competition, prevented new competitors from developing and stifled innovation in the debit card payments space. Visa processed $3.8 trillion in debit card transactions in the United States in the year ending in June. That’s more than 60% of the country’s debit card transactions, and generates more than $7 billion in annual fees.

High Costs for Merchants : 

Those fees, while invisible to consumers, are paid by merchants, who can then pass them on to the prices of goods and services. “Visa’s illegal behavior affects not just the price of one thing, but the price of almost everything,” said Attorney General Merrick B. Garland. The Justice Department accuses Visa of hindering competition, preventing merchants from getting cheaper services and blocking innovation in the payments industry.

 The complaint is not limited to physical card transactions, but includes online and app transactions. Visa also allegedly discouraged companies like PayPal and Square from entering the debit card market by incentivizing them to become partners rather than competitors. According to Doha Mekki, principal assistant attorney general of the Justice Department’s antitrust division, “Visa is abusing its monopoly power to undercut its debit card rivals and buy up potential competitors to the detriment of consumers, merchants, banks, and the competitive process.”

Longstanding Concerns :

The government’s concerns about Visa are not new. In 2020, the Justice Department filed suit to block Visa’s $5.3 billion acquisition of Plaid, a financial technology company, saying the company was trying to eliminate a potential competitor. Visa and Plaid ultimately abandoned their deal. Mastercard, another major player in the payments industry, has also been the subject of similar investigations over practices designed to suppress competition in the debit card payments sector.

Analysts say the Visa case could drag on for a long time and result in mitigation measures. More broadly, the complaint is part of broader scrutiny of the financial industry by U.S. regulators. The Federal Deposit Insurance Corporation (FDIC) board recently voted in favor of stricter rules for evaluating bank mergers.  For its part, the Justice Ministry announced its withdrawal from a 1995 legal framework that governed the evaluation of mergers in the banking sector, signaling a more rigorous approach.