MANHATTAN (CN) — The Justice Department on Tuesday filed an antitrust suit against Visa claiming the payment services giant monopolizes the U.S. market by stomping out its competitors and penalizing businesses that seek to use rival services.
Visa capitalizes on its role as a digital middleman between consumers, merchants and banks for billions of debit card transactions, the government said in its Southern District of New York lawsuit, to “limit the growth of existing competitors and to deter others from developing new and innovative alternatives.”
For banks and merchants, Visa is a “must carry” network because certain purchases need to be completed through Visa in order to go through. Visa knows this is the case, according to the Justice Department, and uses its position to manipulate contracts and charge outsized fees.
Visa forces banks and merchants to agree to “volume requirements” which induce them to direct a large amount of their transactions to Visa or else face higher fees, according to the complaint.
More than 60% of debit transactions in the United States are run on Visa’s debit network, from which Visa rakes in over $7 billion in fees each year.
“Visa, one of the most profitable companies in the United States, has succeeded so thoroughly in insulating itself from competition that it is now earning outsized profit margins from its role as a dominant intermediary — a digital middleman — at the center of the debit transaction market,” the Justice Department says in its complaint.
The department also accuses Visa of employing anticompetitive tactics to squash rivals in the payment services industry like Apple, PayPaul and Square. “Visa feared that these digital platforms may have ‘network ambitions,’ and might seek to eliminate Visa and other debit networks as links between consumers and merchants for debit transactions,” the department says.
Dating back to at least 2012, the department claims Visa used its strategy to “partner with emerging players before they became disruptors.” It offered hundreds of millions of dollars annually to potential competitors who promised not to develop a rival product nor compete in ways that could threaten Visa’s dominance in the payment services industry — and threatened additional fees if the companies did in fact develop competing payment products.
“While Visa is the first name many debit card users see when they take out their card to make a purchase, they do not see the role that Visa plays behind the scenes,” U.S. Attorney General Merrick Garland said in a press conference Tuesday. “There, it controls a complex network of merchants, financial institutions and consumers.”
“What the Justice Department sees — and what we allege in this lawsuit — is that Visa is a monopolist that is distorting the marketplace for debit transactions,” Garland added.
John Donenberg, deputy director of the White House’s National Economic Council, did not provide a comment on the lawsuit but said the Biden-Harris administration “has been clear that the American economy thrives when there is real competition.”
“This administration has also taken on credit card late fees and banking overdraft fees, and will continue working to take on other unfair junk fees on everyday transactions,” Donenberg said.
Julie Rottenberg, Visa’s general counsel, said in a statement that the lawsuit “ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving.”