The U.S. Department of Justice (DOJ) has filed a civil antitrust lawsuit against Visa, accusing the payment processing giant of alleged monopoly in the online debit card market, alleging that Visa violated the Sherman Act and illegally maintained a monopoly position and stifle competition.
Visa’s dominance of the U.S. charge card market
Visa processes more than 60% of all charge card transactions in the United States and collects more than $7 billion in fees annually, the Justice Department noted in its indictment. According to the lawsuit, Visa used its dominant position in the market to impose exclusivity agreements on merchants and banks. The Justice Department argued that these practices blocked charge card transaction volume, hindered competition and prevented the growth of smaller, more cost-effective competitors.
Visa’s strategy to limit competition
The Justice Department lawsuit also alleges that Visa used its influence to force potential competitors into becoming partners.
The company is said to offer monetary incentives or threaten punitive fees to deter new competitors from challenging its dominance. According to the indictment, Visa's strategy was to cooperate and compete to protect its market share and revenue. The Justice Department noted that this allowed Visa to charge far more than it would have in a competitive market.
"We allege that Visa illegally maintained its power to charge fees that far exceeded those charged in a competitive market, and that merchants and banks passed these costs on to consumers, either by raising prices or reducing quality or service," the attorney general said. "Visa's unlawful conduct therefore Behavior not only affects the price of one commodity, but also affects the price of almost all commodities.”
Crowding out smaller charge card networks: Visa allegedly used its influence to impose large transaction volume commitments on merchants, banks and financial institutions that issue charge cards. The promised pricing creates penalties for using rival charge card networks, effectively forcing most charge card transactions to flow through Visa's systems.
Keeping tech companies out: Visa is wary of technology companies and fintech startups trying to offer innovative and more affordable payment solutions. To prevent these companies from subverting their role as middlemen, Visa has struck deals with them to turn potential competitors into partners. A quote from Visa’s former chief financial officer sums up this approach: “Everyone is a friend and a partner, no one is a competitor.”
Charge card transactions are important in the U.S.
The Justice Department said charge card transactions are an important part of the U.S. financial system, with millions of Americans using charge cards to make online and in-person purchases. Visa's dominance of the charge card network market allows it to charge high fees and stifle innovation in payment systems. The Justice Department argued that Visa’s actions cost consumers and businesses billions of dollars in additional fees and hindered the industry’s technological advancement.
The Justice Department said: “Anticompetitive conduct by companies like Visa puts the American people and our entire economy at a disadvantage. Today’s action against Visa is a reminder to businesses that seek to suppress competition rather than compete on price or invest in innovation that the U.S. The Department of Justice will not hesitate to enforce the law for the American people."
Visa’s first monopoly act: Plaid merger
The lawsuit is not the first time Visa has come under scrutiny from the Justice Department. In 2020, the Justice Department filed an antitrust lawsuit to block Visa from acquiring Plaid, a fintech company that provides online charge card payment solutions. The deal, worth $5.3 billion, was ultimately abandoned after the Justice Department intervened.
Headquartered in San Francisco and incorporated in Delaware, Visa continues to have considerable market power. In 2022, the company reported global operating revenue of $18.8 billion and operating margins of 64%. North America remains its most profitable region, with operating margins at 83% for the year. In terms of U.S. charge card transaction volume alone, Visa collects approximately $8 billion in network fees annually and processes $12.3 trillion in total payment volume globally.
Ministry of Justice wants to restore competition in payments market
Through this lawsuit, the Justice Department hopes to restore competition in the charge card market and protect consumers and businesses from high fees and limited payment options. The Ministry of Justice calls for a more competitive market to promote innovation and better manage costs.
The Department of Justice said: "Visa is afraid of competition and innovation, but chooses illegal cooperation and monopoly. Visa abused its power to bribe potential competitors at the expense of American consumers, merchants, banks and competition."
Is there an opportunity for blockchain payments?
Current payment systems often take days to clear, especially in international transactions. However, blockchain technology is capable of providing real-time transaction confirmation and even settlement within seconds. This is a huge advantage for merchants and consumers who need to pay or settle quickly. In addition, Visa and other payment networks usually charge merchants high transaction fees, and the payment system on the blockchain can greatly reduce such costs, especially for cross-border payments, saving remittance fees and time.
Visa's monopoly behavior has hindered innovation and competition in the payment market to some extent, and the development of blockchain technology can introduce more participants and promote the diversity and competition of the payment network. This kind of competition will not only benefit merchants and consumers, but may also promote the upgrading and innovation of payment technology and services. However, the development of blockchain in the payment field still faces some challenges, such as compliance issues, scalability, transaction processing speed and popularity, etc., which will take time and technological advancement to solve.
Overall, blockchain has great potential in payment innovation. It is expected to improve the shortcomings of the current payment system through its unique technical advantages, increase market competition, and provide merchants and consumers with a better payment experience.
This article Visa makes US 7 billion mg a year! The Department of Justice accuses Visa of illegally monopolizing payments. Is there an opportunity for blockchain? First appeared in Chain News ABMedia.
