The Justice Department has filed an antitrust lawsuit against Visa, alleging that the financial services behemoth uses its size and dominance to stifle competition in the debit card market, costing consumers and businesses billions of dollars.
The complaint filed Tuesday says Visa penalizes merchants and banks who don't use Visa's own payment processing technology to process debit transactions, even though alternatives exist. Visa earns an incremental fee from every transaction processed on its network.
According to the DOJ's complaint, 60% of debit transactions in the United States run on Visa’s debit network, allowing it to charge over $7 billion in fees each year for processing those transactions.
"We allege that to maintain this monopoly power, Visa deploys a web of unawful, anticompetitive agreements to penalize merchants and banks for using competing payment networks," Attorney General Merrick Garland said during a press briefing about the lawsuit Tuesday. “At the same time, it coerces would-be market entrants into unlawful agreements not to compete by threatening high fees if they do not cooperate and promising big payoffs if they do."
He said merchants and banks pass along the costs of Visa's fees to consumers either by increasing prices or reducing the quality of their goods and services.
"As a result, Visa’s unlawful conduct affects not just the price of one thing – but the price of nearly everything,” he said.
The Biden administration has aggressively gone after U.S. companies that it says act like middlemen, such as Ticketmaster parent Live Nation and the real estate software company RealPage, accusing them of burdening Americans with nonsensical fees and anticompetitive behavior. The administration has also brought charges of monopolistic behavior against technology giants such as Apple and Google.
"In some of the Justice Department's antitrust enforcement actions, the harm caused by the alleged illegal conduct is more visible as higher prices for air travel, for concert tickets, for smart phones," Garland said. "The harmful effects of Visa's alleged anticompetitive conduct are less visible, but they are no less harmful."
He said "a significant sum" of the fees Visa collects on debit transactions are from Visa's alleged illegal activities.
According to the DOJ complaint, filed in the U.S. District Court for the Southern District of New York, Visa leverages the vast number of transactions on its network to impose volume commitments on merchants and their banks, as well as on financial institutions that issue debit cards. That makes it difficult for merchants to use alternatives, such as lower-cost or smaller payment processors, instead of Visa’s payment processing technology, without incurring what DOJ described as “disloyalty penalties” from Visa.
In 2020, the DOJ sued to block the company's $5.3 billion purchase of financial technology startup Plaid, calling it a monopolistic takeover of a potential competitor to Visa’s ubiquitous payments network. That acquisition was eventually later called off.
Visa previously disclosed the Justice Department was investigating the company in 2021, saying in a regulatory filing it was cooperating with a DOJ investigation into its debit practices.
Since the pandemic, more consumers globally have been shopping online for goods and services, which has translated into more revenue for Visa in the form of fees. Even traditionally cash-heavy businesses like bars, barbers and coffee shops have started accepting credit or debit cards as a form of payment, often via smartphones.
Visa processed $3.325 trillion in transactions on its network during the quarter ended June 30, up 7.4% from a year earlier. U.S. payments grew by 5.1%, which is faster than U.S. economic growth.
Visa, based in San Francisco, did not immediately have a comment. Visa shares fell $13.53, or 4.7%, to $275.10 in afternoon trading.