Biden DOJ slaps Visa with antitrust suit over debit card dominance

The Justice Department on Tuesday sued Visa, accusing the payments giant of illegally monopolizing the U.S. market for debit cards, stomping out rivals and inflating fees that are passed along to consumers.

The lawsuit, filed in the Southern District of New York , alleges that Visa has leveraged its debit card market dominance to “thwart the growth of its existing competitors and prevent others from developing new and innovative alternatives,” according to a DOJ statement.

The department accused Visa of a wide-ranging scheme stretching back as early as 2012 that it said artificially inflated the prices the payment company charged merchants and cut off competition from newer financial technology companies like PayPal, Square and Apple.

“Visa went to war with the forces of competition and merchants and consumers lost,” a senior Justice Department official said on a call previewing the case to reporters.

Officials on the call described Visa’s conduct as both harmful to merchants, particularly small businesses, and to consumers who struggle to access credit, making debit cards their primary payment option.

The pending lawsuit was previously reported by POLITICO .

The case centers on Visa’s role as the dominant middleman between consumers, merchants, and banks for billions of debit card transactions. The lawsuit focuses on the fees that Visa charges merchants to use its massive debit card network — which are separate from the swipe fees pocketed by banks that have long sparked their own political fights.

Debit cards are the primary way that Americans pay for goods and services without cash — with the number of transactions far eclipsing credit cards each year. And they’re a central component of Visa’s business. According to the DOJ, Visa controls about 60 percent of the U.S. debit card market, allowing it to charge more than $7 billion in network fees each year, much of which is generated by its illegal conduct, according to the DOJ.

Visa is three times as big as MasterCard, its closest rival, which controls about 25 percent of the debit market, according to the DOJ.

“We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market,” Attorney General Merrick Garland said in a statement. “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 pushed back on the lawsuit, calling it "meritless" and vowing to vigorously defend itself in court.

"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," Julie Rottenberg, Visa's general counsel, said in a statement. "When businesses and consumers choose Visa, it is because of our secure and reliable network, world-class fraud protection, and the value we provide."

The Justice Department and the Federal Trade Commission have taken an aggressive stance against what they view as monopolistic conduct under President Joe Biden's administration, and the Visa case is just the latest in a string of lawsuits. The DOJ has cases against Apple, Ticketmaster, Google and RealPage, and is investigating UnitedHealthcare, the largest U.S. healthcare company.

The department makes two high-level accusations in its case against Visa: Through pricing structures including volume discounts and prohibitions on the use of competing networks, Visa impedes the ability of its smaller rivals to gain market share. And the company has entered into agreements with financial technology companies like PayPal and Square that also allegedly block their ability to take business from Visa, the DOJ said.

According to the complaint, Visa’s agreements with banks are structured so that unless nearly all payment volume is processed on its networks, the company imposes “large disloyalty penalties,” making merchants unable to afford lower-priced competitors.

And according to Visa’s internal documents, it aimed to neutralize up-and-coming fintech companies through partnerships, with its CFO saying “Everybody is a friend and partner. Nobody is a competitor,” according to the complaint.

Visa feared that potential fintech competitors like Apple, PayPal and Square may have "network ambitions" that would threaten its dominance, the Justice Department wrote in its complaint. DOJ said Visa viewed Apple Pay as an "existential threat" to its debit business.

Much of the complaint describes Visa's conduct as a series of agreements giving it "de facto" exclusivity in payment processing and "creating a web of deals to foreclose rivals." That tees up a common theme in recent DOJ antitrust cases, which focus on dominant companies using contracts to exclude competitors and use language like "moat" and "gatekeeper."

The DOJ recently won a case against Google where it accused the search giant of signing agreements with Apple and other mobile companies to promote its search engine over rivals. And its case against Ticketmaster also homes in on a series of agreements with concert promoters and venues to allegedly exclude the competition.

Visa started taking these actions more than a decade ago as it faced growing competitive threats, the DOJ said. Congress, as part of the 2010 Dodd-Frank Act, required banks that issue debit cards to allow transactions to move across at least two different payment networks, with the idea of increasing choices for merchants.

"In the years immediately following the passage of the Durbin Amendment, Visa recognized that smaller debit networks and 'outspoken merchants' would use the legislation to shift share away from Visa," according to the complaint. Because of that, "Visa set out to systematically deny this scale on both sides of the market to its debit rivals and frustrate the Durbin Amendment."

Visa’s conduct has “resulted in billions of dollars in additional fees imposed on American consumers and businesses and slowed innovation in the debit payments ecosystem,” the DOJ said in a statement. The company’s scale with both issuing and merchant banks enables it to build an "'enormous moat' around its business," the DOJ said.

Sens. Dick Durbin (D-Ill.) and Roger Marshall (R-Kan.) are working to pass the Credit Card Competition Act, which extends the Durbin Amendment's two-network requirement to large credit card-issuing banks. In a joint statement, the two praised the DOJ case.

"At a time when hard-working Americans and small business owners are struggling with higher costs of everyday essentials, Visa should not be gaming the system to pad their own pockets," they said.

Retail groups including the National Retail Federation and the Merchant Payments Coalition, which have long pushed for action curbing Visa and MasterCard, also lauded the case. The right-leaning Competitive Enterprise Institute, meanwhile, called it "a strange use of limited resources," saying the pending merger between Capital One and Discover will bring more competition to the sector.

The payments industry has long been the subject of antitrust scrutiny over the array of fees that are extracted from the use of debit and credit cards. The charges that Visa assesses for the use of its network are the subject of DOJ lawsuit, but it’s only one component of the massive fight over fees.

Other processing fees, known as interchange fees or swipe fees, have sparked furious political fights in Washington, generally pitting merchants that have to pay them against the card networks that set them and the banks that collect them. A federal judge in New York recently rejected a settlement in a private antitrust case against Visa and MasterCard, the second such setback in nearly 20 years of litigation.

As for what changes to Visa’s business the government is seeking, they are not yet outlining any specific ask, with a DOJ official on the call Tuesday saying they will first seek to prove Visa violated antitrust law followed by whatever fixes a judge deems necessary.

The probe was launched in part after Visa abandoned its takeover of payments company Plaid following a DOJ lawsuit challenging the deal in early 2021. The government argued that Visa was planning to bury a rival technology company. Visa’s competitor, MasterCard, settled a separate enforcement action in late 2022 over its own tokenization practices with the FTC.