NEW YORK (AP) — The U.S. Justice Department has initiated an antitrust lawsuit against Visa, claiming the financial giant leverages its market dominance to suppress competition in the debit card sector, causing significant financial losses for consumers and businesses alike.
The lawsuit, filed on Tuesday in the U.S. District Court for the Southern District of New York, outlines how Visa imposes coercive volume commitments on merchants and banks that process debit transactions through its platform. This practice discourages the use of alternative, often cheaper payment processors, effectively punishing those who consider switching away from Visa’s technology with penalties referred to as “disloyalty penalties” by the DOJ.
Visa’s control over the debit market is significant, with the company reportedly facilitating 60% of all debit transactions in the U.S. and generating annual processing fees exceeding $7 billion. “We allege that Visa has unlawfully amasses the power to extract fees that are well above what would be possible in a competitive landscape,” stated Attorney General Merrick B. Garland. He emphasized that these exorbitant fees ultimately inflate costs for consumers, as merchants and banks transfer these expenses to them through higher prices or diminished service quality.
In an environment where online shopping has surged due to the pandemic, more businesses, including those typically reliant on cash, are transitioning to card payments—impacting Visa’s revenue flow positively. According to KBW analyst Sanjay Sahrani, debit revenues may contribute only about 10% to Visa’s total income, suggesting that even a significant legal outcome is unlikely to disrupt the company’s overall revenue growth.
The Biden administration has intensified its scrutiny of corporations that act as middlemen, including Visa, which has faced previous investigations and lawsuits. For instance, in 2020, the DOJ attempted to block Visa’s $5.3 billion acquisition of financial technology firm Plaid, citing concerns of monopoly power.
In response to the ongoing challenges, Visa has recently acknowledged cooperating with the DOJ’s investigations concerning its debit practices. While Visa’s operations are currently robust—reporting a $3.325 trillion transaction volume in the quarter ending June 30—the DOJ’s lawsuit may lead to extensive legal proceedings that could span several years if it goes to trial.
Lastly, as a result of the lawsuit, Visa’s stock experienced a downturn, falling 4.7% to $275.10 during afternoon trading, reflecting investor concerns over the potential repercussions of the antitrust claims against the company.
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