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The U.S. Department of Justice filed the lawsuit on Tuesday. visaThe report argues that Singapore’s CBDC, the world’s largest payments network, is maintaining an illegal monopoly on debit payments by imposing “exclusivity” contracts on its partners and stifling start-ups.
Visa’s actions over the years have cost American consumers and merchants billions of dollars in additional fees, according to the Department of Justice, which filed a civil antitrust lawsuit in New York alleging “monopoly” and other unlawful conduct.
“We allege that Visa has illegally 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 Justice Department statement.
“Retailers and banks pass these costs on to consumers, either by raising prices or reducing quality and service,” Garland said. “As a result, Visa’s illegal conduct affects not just the price of one thing, but the price of nearly everything.”
Visa and its smaller rivals MasterCard Over the past two decades, the market capitalization of credit cards has soared to a total market capitalization of roughly $1 trillion as consumers have replaced paper currency with credit and debit cards for in-store purchases and e-commerce. Credit and debit cards are essentially bill collectors, passing payments between merchants and banks that operate on behalf of the cardholders.
Visa criticized the Justice Department’s lawsuit as “meritless.”
“Anyone who has ever bought something online or checked out in a store knows that more and more companies are offering new ways to pay for goods and services,” said Julie Rottenberg, general counsel at Visa.
“Today’s lawsuit ignores the reality that Visa is just one of many competitors in a growing debit card industry, and new entrants are thriving,” Rottenberg said. “We are proud of the payments network we’ve built, the innovation we drive and the economic opportunities we enable.”
According to the Justice Department’s complaint, more than 60% of debit transactions in the United States are made through Visa, which charges the company more than $7 billion in fees annually.
The payments network’s decades-long dominance is drawing increasing attention from regulators and retailers.
A series of heartbreaks
In 2020, the Department of Justice filed an antitrust lawsuit to block Visa’s acquisition of fintech company Plaid. The companies initially said they would fight the lawsuit but quickly abandoned the $5.3 billion deal.
In March, Visa and MasterCard agreed to limit fees and allow retailers to charge customers for using their credit cards. Retailers said the deal would save them $30 billion over five years. A federal judge later rejected the settlement, finding the networks could afford the “significantly larger” deal.
The Justice Department said in its complaint that Visa maintained the dominance of its network by threatening merchants and their banks with punitive interest rates that would route a “substantial percentage” of debit transactions to competitors. The Justice Department said the agreements helped isolate three-quarters of Visa’s debit transaction volume from fair competition.
“Visa has used its dominance, massive scale and centrality to the debit ecosystem to impose a series of exclusionary agreements on merchants and banks,” the Justice Department said in a statement. “These agreements disadvantage Visa customers who route their transactions to separate debit networks or alternative payment systems.”
Moreover, when faced with the threats, Visa “engaged in a series of deliberate and incremental actions to choke off competition and prevent competitors from gaining the scale, market share and data they need to compete,” the Justice Department said.
Bribing a competitor
The Justice Department said those practices also stifled innovation: Visa pays competitors hundreds of millions of dollars a year “to mitigate the risk that they would develop disruptive new technologies that could advance the industry but threaten Visa’s monopoly interests,” the lawsuit said.
Visa has agreements with the following technology companies: apple, PayPal and squareThe Justice Department said the companies had morphed from potential rivals into partners, to the detriment of the public.
For example, Visa chose to sign a deal with the predecessor to its Cash App product to ensure that the company, which later rebranded as Block, would not pose a significant threat to Visa’s debit line.
“We maintained tight control over Square and our deal structure was intended to prevent the removal of the middleman,” a Visa manager was quoted as saying, according to the lawsuit.
According to the lawsuit, Visa has an agreement with Apple in which it says it will not compete directly with the payment network “including by developing any payment functionality that relies primarily on non-Visa payment processing.”
The Department of Justice asked the court to block a variety of anticompetitive practices by Visa, including pricing structures and service bundling that discourage new entrants.
The move comes at the end of President Joe Biden’s administration, when regulators including the Federal Trade Commission and the Consumer Financial Protection Bureau have been suing middlemen over drug prices and pushing back against so-called junk fees.
In February, the credit card company Capital One Financial InformationThe $35.3 billion deal is premised in part on Capital One’s ability to strengthen Discover’s junior payments network, which has helped Discover acquire Visa, MasterCard and American Express.
Capital One said that once the acquisition is complete, it plans to gradually switch all of its debit-card volume and growing credit-card volume to Discover, making it a more effective competitor to Visa and MasterCard.