US accuses Visa of monopolizing debit card transfers

The US Justice Department sued Visa for alleged antitrust violations on Tuesday, accusing one of the world’s largest payments networks of stifling competition by threatening merchants with high fees and paying potential rivals.

Visa processes more than 60 percent of U.S. debit transactions, earning it $7 billion each year in fees collected when transactions are routed through its network, the Justice Department said. The company protects that dominant position through agreements with card issuers, merchants and competitors, prosecutors say.

Visa shares were down 4.7% in afternoon trading on Tuesday.

The move to address the taxes, sometimes known as pass-through fees or interchange fees, is part of the Biden administration’s efforts to combat rising consumer prices, a major issue in the Nov. 5 presidential election between Democrat Kamala Harris and Republican Donald Trump.

“Visa’s illegal conduct affects not just the price of one thing, but the price of almost everything,” Attorney General Merrick Garland said in a statement, noting that merchants and banks are passing the costs of the payment network on to consumers.

Visa’s alleged anticompetitive behavior began around 2012, when competing companies entered the payments space following reforms that required card issuers to host unaffiliated networks, a senior Justice Department official said.

Visa struck lucrative deals with potential financial technology competitors, including Apple, PayPal and Block Inc’s Square, that they would not launch products that threatened its dominance, prosecutors allege.

The card network also charges “stunning financial penalties” to merchants who don’t route all or most eligible transactions through Visa’s network, according to the lawsuit.

Prosecutors are seeking an order from a Manhattan judge to block Visa from imposing anticompetitive pricing structures and paying rivals not to compete, which they said would restore competition for debit payment processing services both online and and in physical stores.

The Justice Department’s antitrust division began investigating Visa over its debit card practices in 2021, the same year it blocked Visa’s acquisition of financial technology company Plaid. Rival Mastercard said in April it was also being investigated by the Justice Department.

Both companies have been at loggerheads for nearly two decades over their dominance of the card market.

Visa and Mastercard agreed in 2019 to pay US merchants $5.6 billion to settle claims in a class-action lawsuit accusing them of anti-competitive practices.

A federal judge in Brooklyn in June rejected a parallel settlement that would cut transfer fees by about $30 billion over five years and require Visa and Mastercard to lift some rules that prohibit merchants from charging customers to use the cards.

Visa has set aside about $1.6 billion for possible settlements in other US interchange fee cases.

(Reporting by Jody Godoy in New York; Editing by Bill Berkrot and Daniel Wallis)