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The payments giant has questioned the legitimacy of the US Department of Justice’s (DOJ) lawsuit, as the authority accuses it of monopolising its power in the market.
Visa has rubbished a DOJ lawsuit against them, arguing that it “ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving”.
“When businesses and consumers choose Visa, it is because of our secure and reliable network, world-class fraud protection, and the value we provide,” said Julie Rottenberg, Visa’s general counsel, in a statement to the media.
She added that the company is “proud of the payments network we have built, the innovation we advance, and the economic opportunity we enable”.
“This lawsuit is meritless, and we will defend ourselves vigorously.”
The lawsuit, lodged on Tuesday (September 23) in the US District Court for the Southern District of New York, charges Visa with violating Sections 1 and 2 of the Sherman Antitrust Act by using its dominance to stifle competition and suppress innovation in the market.
According to the Justice Department, the company controls more than 60 percent of US debit transactions, generating more than $7bn in fees annually.
The lawsuit alleges that Visa uses its market dominance to insulate itself from competition, imposing exclusionary agreements on merchants and banks that penalise customers for routing transactions through alternative debit networks.
For example, the lawsuit says that “even for entities that do not operate staged digital wallets, Visa guards against the potential of being disintermediated”, stating that many of Visa’s potential competitors are also customers of the company.
Here, the authority has said that Visa uses its monopoly power, and the threat of imposing its high fees, rack rates and other penalties, to induce potential competitors to sign contracts that preserve Visa’s prime position in the payments ecosystem.
“Each year, Visa spends a portion of its supracompetitive profits to buy off potential competitors, ensuring Visa can continue to reap the financial benefits of its monopoly,” the lawsuit alleges.
The department also says that Visa benefits from partnering with established big tech players such as Google and Apple by obtaining “total control of ecommerce acceptance and online payments flow in their ecosystems” and accuses the company of “targeting a small number of Visa’s largest and most influential Big Tech merchants with custom incentive arrangements on Visa-eligible debit volume in return for commitments from them to not dislodge Visa as the middleman, and other future commitments”.
This behaviour, the complaint claims, has locked in Visa's monopoly, hindering smaller, lower-priced competitors and stifling potential new entrants to the market.
"We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market," said Attorney General Merrick B. Garland. "This conduct impacts consumers across the board, driving up prices and reducing service quality."
A middleman and a gatekeeper?
In a statement, Benjamin C. Mizer, who serves as principal deputy associate attorney general, criticised Visa, calling it a “classic example of a middleman that takes advantage of its role as gatekeeper to stamp out competition”.
Mizer said that as Visa facilitates commercial transactions, it has the power to exercise considerable control over the markets in which it operates. “These middlemen can use that power to make those markets more efficient, offering more choices and more affordable products. Or, like Visa, they can try to use that power to hike fees on customers and stifle innovation.”
The lawsuit argues that Visa’s actions have not only inflated the fees businesses pay but have also resulted in higher costs for consumers, with retailers passing along the increased expenses through price hikes or reduced services, with Mizer commenting that “many Americans rely exclusively on debit cards”.
“When merchants raise their prices to cover Visa’s exorbitant fees, the burden of Visa’s anticompetitive conduct falls disproportionately on Americans who are less well off, and who feel the impact of high prices most painfully,” he said.
Principal deputy assistant attorney general Doha Mekki, from the Justice Department’s antitrust division, emphasised the broad impact of Visa's practices. “Visa abuses its power over its customers and buys off would-be rivals at the expense of American consumers, merchants, banks, and the competitive process itself,” she said.
The lawsuit is not the first time that the DOJ has had Visa in its sights. In 2020, Visa made an ill-fated attempt to acquire Plaid, a deal that was blocked after the Justice Department filed a lawsuit, and the companies subsequently abandoned the $5.3bn merger.
