The DOJ accuses Visa of running an illegal debit monopoly that costs consumers and merchants billions
Swiper no swiping… The Department of Justice sued Visa this week, saying that the world’s largest payments network maintained an illegal monopoly over debit-card swipes. Visa stock has dropped over 6% since the department accused it of smothering the competition. FYI: Visa makes $$ on every swipe of its cards by charging banks and merchants for using its payments network. The DOJ said that Visa’s practices have led to consumers and merchants paying billions in extra swipe fees.
Key quote: “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.”
Visa called the suit “meritless,” saying that the debit space is growing with plenty of competition, including rivals who are “thriving” (possibly: Mastercard, Discover). The DOJ says that over 60% of US debit transactions happen on Visa’s network.
Keep your friends close… and your financial-services enemies closer. For the Justice Department, the problem isn’t necessarily Visa’s dominance; it’s how it thinks Visa has kept that dominance. The DOJ alleges that Visa has made agreements with other financial-services companies that prevent them from threatening its position. Visa has deals with Apple, PayPal, and Square, which the department says turns them from potential rivals into partners (Apple agreed not to directly compete with Visa’s network). Visa also tried to snatch up fintech co Plaid (now Block), but the DOJ sued to stop that in 2020.
There’s no such thing as a free swipe… Consumers don’t often think of the invisible fee network behind each noncash purchase they make. But the charges cost US merchants $72B last year, and those can be passed to shoppers. Most of those fees go to the bank that issued your card, but it adds up to billions for networks like Visa that move your payments.