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WASHINGTON (TND) — Visa is facing an antitrust lawsuit from the Department of Justice targeting its vast card network that is utilized in trillions of dollars’ worth of transactions every year in a growing collection of Biden administration to crack down on big companies and spur competition.
While consumers may notice that many debit cards are issued through Visa, they are less likely to notice that the company’s network processes a large share of purchases that are made using debit cards. U.S. consumers have shifted significantly toward using cards for payment over cash or checks, which has meant more of their purchases are made using cards running on Visa’s payment network.
The lawsuit threatens to shake up the payment networks and infrastructure that powers them, which the department says Visa controls some 60% of the marketplace for and earns it $7 billion a year in fees. Visa’s share of the marketplace dwarfs that of other rivals like Mastercard, American Express and Discover, which has frustrated merchants for years that feel stuck using it and forcing them to decide whether to pass the costs back onto consumers.
“Merchants and banks pass along those costs to consumers, either by raising prices or reducing quality or service. As a result, Visa’s unlawful conduct affects not just the price of one thing – but the price of nearly everything,” Attorney General Merrick Garland said in a statement.
According to the lawsuit, Visa’s vast market share allows them to charge fees that they wouldn’t otherwise be able to get, and the company has either bullied or financially incentivized merchants and banks to use its payments system for most transactions.
Julie Rottenberg, Visa’s general counsel, said in a statement that the lawsuit doesn’t take into account the “ever expanding universe of companies offering new ways to pay for goods and services.”
“Today’s lawsuit ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving,” Rottenberg said.
While the DOJ and administration argue that Visa’s dominance of the marketplace is hurting consumers through higher prices, it’s unclear how much money the average American would save if the company was forced to sell off parts of its holding or stop the alleged anticompetitive practices that have kept smaller startups from competing.
“The degree to which it’s going to, even if (DOJ) were to win, have a material effect on consumer pocketbooks, I think is relatively small in the grand scheme,” said Cliff Rossi, a professor of finance at the University of Maryland’s Robert H. Smith School of Business who also worked in high levels of risk management for several large banks.
The Justice Department has been investigating Visa in various capacities for years dating back to the Trump administration. It sued in 2020 to block a $5.3 billion deal for Visa to acquire Plaid, a financial technology firm, under allegations that it was trying to stomp out an upstart rival.
The deal fell through two months later but that has not stopped antitrust scrutiny over the banking and credit card industries, particularly from the Biden administration. Dominance in the banking, credit card and finance industries has been a hotly debated issue since the 2008 financial crisis, and one that was renewed after the government had to backstop account balances in the bank failures.
A series of bank collapses last year also sparked additional scrutiny from regulators and lawmakers about how to handle the country’s financial system and led to regulatory agencies proposing tougher requirements like holding more capital to avoid bank runs and changing the amount of funds covered by the Federal Deposit Insurance Corporation.
“This lawsuit is more of a future-state concern that if a Visa continues to go down this path of aggressive practices to squeeze out potential competition to really wring out all the efficiencies that they can get by forcing their customers to not use other networks or get penalized for doing so. In the end state, they may become an even more dominant player, in which case you do get into more of a monopolistic-type of competition that they are the only the game in town,” Rossi said.
A pillar of President Joe Biden’s economic agenda has been an aggressive approach to antitrust and so-called “junk fees” and other charges companies pass onto consumers that the White House argues raise costs for consumers to line companies’ pockets.
The banking industry is also fighting a plan from the Biden administration to cap overdraft fees as low as $3, which would threaten billions in revenue for banks of all sizes. A merger between Capital One and Discover is also facing stiff scrutiny over concerns that consolidating the market even further on credit cards could ultimately end up costing consumers more money.
FDIC’s board also voted this month in favor of putting more stringent guidelines for evaluating bank mergers. Paired with the DOJ announcement that it is pulling out of a framework guiding its own oversight of deals, banking mergers will likely be subject to tougher standards moving forward.