DOJ Sues Visa for Alleged Monopoly on Debit Card Use

Good afternoon. Earlier today, the Department of Justice sued Visa for violating Sections 1 and 2 of the Sherman Antitrust Act. We allege, Visa is a monopolist in the debit transaction markets, that is violating federal antitrust law and inflicting, often hidden but significant, harm on American consumers and businesses. Visa operates the largest debit network in the United States. A debit network facilitates the electronic transfer of funds directly from a consumer’s bank account to the merchant’s bank account in a retail transaction. Millions of Americans prefer to use debit transactions, which are often the primary option for lower-income consumers without a credit card.

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In the United States, over $4 trillion of debit card transactions take place every year. Over 60% of those transactions and over 70% of all online debit transactions are routed through Visa’s Electronic Payment Network. According to Visa’s own calculations, it is insulated from competition for 75 to 80% of debit transactions initiated with a Visa-branded debit card. We allege that to maintain this monopoly power, Visa deploys a web of unlawful anti-competitive agreements to penalize merchants and banks for using competing payment networks. At the same time, it coerces would-be market entrants into unlawful agreements not to compete, by threatening high fees if they do not cooperate and promising big payoffs if they do. The result is a debit market where Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market. Merchants and banks pass along those costs to consumers, either by raising prices or reducing quality or service.

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As a result, Visa’s unlawful conduct affects not just the price of one thing but the price of nearly everything. When a bank issues a debit card, it chooses which electronic payment networks will be authorized to process the card’s transactions. When a debit card holder uses that card to buy something from a merchant, the merchant, or for a smaller merchant, its bank, must choose which of the issuer’s accepted networks it will use to process the transaction. We allege that Visa has virtually eliminated that choice. It has done so not by offering the most competitive rates or the most innovative product, but by unlawfully structuring its contracts to disincentivize merchants and banks from doing business using competitor electronic payment networks.

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Visa knows it is a, quote, “must-carry network” for banks and merchants alike. That means all merchants and banks must contract with Visa, because certain purchases using a Visa debit card can only be completed through its network. Visa uses that leverage to get banks and merchants to agree to what are known as, quote, “volume requirements.” These provisions require banks and merchants to direct a large amount of their transactions to Visa or else face higher fees. As a result, when merchants weigh the decision of which electronic payment network to use for a given transaction, they cannot choose the authorized network with the lowest price or the best offering for that transaction. Instead, they operate under the threat that if they do not process enough of their payments through Visa, they will face exorbitant fees on all Visa debt transactions.

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Today, Visa collects more than $7 billion each year in network fees on US debit transactions, with a significant part of that sum resulting from Visa’s illegal conduct. In addition to entering into anti-competitive contracts for use of its network, we allege that Visa unlawfully uses its monopoly power to discourage potential rivals, particularly technology companies, from competing in the debit transaction market. In a Visa executive’s own words, it views potential entrants with deep merchant-consumer networks as a, quote, “existential threat” to its debit business.

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As outlined in our complaint, Visa has expressed fear that its self-described, quote, “frenemies” in Big Tech would launch technology that competes with Visa by enabling payment directly from consumer’s bank accounts. For example, in the case of Square, the company that operates the digital wallet known as Cash App, Visa has entered into a series of contracts that discourage Square from competing aggressively against Visa, or as a Visa executive stated, quote, “We’ve got Square on a short leash.” Entering into contracts with would-be competitors to prevent them from becoming actual competitors is an unlawful agreement not to compete that violates Section 1 of the Sherman Antitrust Act, and leveraging monopoly power to limit competitors’ ability to gain market share violates Section 2 of that act.

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I am grateful to the Department’s Antitrust Division

… mission for their excellent work on this case over the past three years. That includes the leaders of the division who are standing behind me, as well as the dedicated career attorney and attorneys and staff who work tirelessly to protect consumers and ensure competitive markets. Today’s lawsuit against Visa is only the latest example of the Justice Department’s work to enforce the antitrust laws and hold accountable companies that undermine competition and harm the American people. In some of the Justice Department’s antitrust enforcement actions, the harm caused by the alleged illegal conduct is more visible, higher prices for air travel, for concert tickets, for smartphones. The harmful effects of Visa’s alleged anti-competitive conduct are less visible, but they are no less harmful.

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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. 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 transaction. It is unlawfully blocking competition, it is depriving American banks, merchants, and consumers of lower costs and product innovation. It is charging a hidden toll on each of trillions of transactions, adding up to billions of dollars of fees imposed annually on American consumers and businesses. I’m now going to turn the podium over to Principal Deputy Associate Attorney General Ben Mizer. Thank you all.

Thank you, Attorney General Garland. Today, the department brings this antitrust action against Visa for monopolizing the debit market. Our complaint describes how Visa has maintained this monopoly, not by competing on the merits, but by threatening merchants and banks with higher rates if they do business with Visa’s competitors. And we explain how Visa has further entrenched its dominance by disrupting innovations that threaten to loosen its control.

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Visa is a classic example of a middleman that takes advantage of its role as gatekeeper to stamp out competition. Because companies like Visa facilitate commercial transactions, they have the power to exercise considerable control over the markets in which they operate. 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 to stifle innovation. More and more, we are seeing these kinds of intermediaries gain control in a broad range of industries, from healthcare to online advertising, to live music, to housing.

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As today’s action demonstrates, we remain dedicated to stopping these middlemen from exploiting their power to increase their profits while consumers get harmed. Today’s action also reflects our continued commitment to ensuring economic justice for all Americans and fighting illegal conduct that unfairly raises prices. Every day, millions of Americans use debit cards to buy groceries, clothing, and other necessities. Many Americans rely exclusively on debit cards, particularly younger or less affluent individuals who are unable to obtain credit cards, or who prefer not to use them.

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When merchants raise their prices to cover Visa’s exorbitant fees, the burden of Visa’s anti-competitive conduct falls disproportionately on Americans who are less well off and who feel the impact of high prices most painfully. Promoting competition through antitrust enforcement levels the playing field and plays a critical part in advancing economic opportunity and equity. But our work to ensure economic opportunity for all Americans regardless of income status, spans the entire department. It includes the civil division’s work to protect vulnerable seniors from financial fraud, and it includes the environment and natural resources division’s fight to ensure all Americans, including people in native communities, have access to clean air, safe drinking water, and a healthy environment.

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Today’s action against Visa makes clear that we will continue to focus our resources on advancing economic justice and equity. Before I close, I would like to join the Attorney General in thanking the staff and leadership of the Antitrust Division for their extraordinary work on this matter. The department is incredibly grateful for your continued dedication and professionalism. With that, I will now turn the podium over to Principal Deputy Assistant Attorney General Doha Mekki.

Good afternoon. This afternoon, the Justice Department filed a monopolization lawsuit about a financial network we do not see but cannot escape. Every year, this financial network processes 157 billion debit transactions. Whether at the grocery store, the pharmacy, the gas station, or online, millions of Americans give merchants their debit credentials, allowing them to pay for goods and services directly from their bank accounts. And for Americans of all stripes, they either need or prefer to use debit as a payment option.

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What those millions of Americans cannot see is that behind every debit transaction, there is a communications infrastructure that makes it all happen. But this infrastructure, as we allege, is neither innovative nor new. In fact, it has been around in one form or another since the 1970s. Despite the passage of time, the dawn of new technologies and payment paradigms, one corporation, Visa, is an unavoidable debit network for merchants, banks, and financial institutions and consumers, and Visa knows it.

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Visa’s dominance is reflected in its slogan, and I quote, “Everywhere you want to be.” But for merchants, banks, and consumers, one could just as easily add, “Whether you want us or not,” because in fact, Visa has not maintained its dominance By innovating, by competing on the merits, or championing consumer choice, it has done so through exclusion and penalization. Visa’s conduct is unlawful. And today, we have filed a lawsuit to stop it. As the Attorney General said, Visa has a durable monopoly over debit card networks. More than 60% of debit transactions in the United States run on Visa’s debit network, allowing it to charge over 7 billion in fees each year for processing

… These transactions. Visa rakes in sky-high margins and faces, in its own words, “Approximately zero marginal costs.” Visa’s fees have many names: a domestic service fee, a data processing fee, an acquired service fee, a network acquirer fee, a fixed acquirer network fee.

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Regardless of what they are or who pays them, these fees add up to billions in hidden costs and tolls that must be borne by businesses, working families and the U.S. economy, as a whole.

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Visa knows the source of its dominance is its immense scale on both sides of the market. It is widely used by consumers’ banks on the one hand and cannot be avoided by merchants on the other hand. Visa recognizes that this scale is an, “Enormous moat that protects and sustains its monopoly, debit business and profits.”

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As we allege in our complaint, it did not have to be this way. But in the early 2010s, competition threatened to erode Visa’s debit monopoly. At that time, Visa faced twin competitive threats.

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First, Congress sought to unlock competition and lower prices by requiring banks that issue debit cards to include at least two debit-routing options on their cards. This would allow debit payment networks to compete for transactions between consumers and merchants at the point of sale.

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Second, at the same time, technological innovation had sprouted a new paradigm in which merchants and consumers could directly connect with fewer middlemen like Visa. Faced with these threats, Visa developed a plan to wield and protect its monopoly power and distort competition for debit transactions.

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Visa extracted a series of agreements with major merchants, banks that issue debit cards and other key industry players. Those agreements forced merchants who might consider a lower cost rival into a false choice: choose Visa or face ruinous fees on every single Visa transaction.

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But there’s more. Visa feared entry by potential fintech competitors like Apple, PayPal and Square. It worried these competitors might have what it described as, ” Network ambitions,” which would threaten Visa’s dominance and centrality in debit. It worried about fintech payment networks gaining scale with both merchants and consumers and, “Becoming a viable merchant option, positioned and priced as a substitute for debit.”

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So, Visa began co-opting and neutralizing competition by turning rivals and potential competitors into what Visa called “partners”, on the condition, of course, that they did not develop competing payment products.

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Visa offered payoffs to incentivize potential competitors to stay out of the debit market. It also threatened potentially ruinous financial penalties if up-and-coming competitors innovate in ways that Visa does not like. As Visa’s then-CFO explained, just last year, Visa, “Makes it worth their while to partner with us.”

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Through these agreements, Visa shrewdly and deliberately built for itself the cosseted life of a monopolist in which, as Visa’s CFO emphasized, “Everybody is a friend and partner. Nobody is a competitor.” But the antitrust laws have something to say about that. And that is why we have filed today’s lawsuit against Visa.

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For more than a century, the Justice Department has fought anticompetitive conduct in financial services markets. From stopping mergers that threaten affordable access to banking, like United States v. Philadelphia National Bank, to breaking up the rules that restricted competition on the NASDAQ, the division has made clear the antitrust laws protect the U.S. financial system that benefits small and large businesses, financial institutions, and consumers, from monopolists and anticompetitive behavior alike. Today’s case follows in the long and storied legacy of the Antitrust Division to vindicate competition in American commerce.

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In closing, I would like to thank the incredibly hardworking, brilliant and service-minded attorneys, economists and paralegals of the Antitrust Division, many of whom are in the back of the room today, who came here to hear the attorney general announce their case. Their tireless efforts to restore economic justice to this critical market resulted in today’s filing. I am so proud every day to be your colleague, but especially today. Thank you so much for your work.

We’ll do questions, statements.

Mr. Attorney General, I’m sure you’ll get some questions about Visa, but respectfully I’d like to ask you about former President Donald Trump. The former president yesterday put out a statement who was critical of your Justice Department. He said that, “Kamala Harris, Joe Biden, Department of Justice and FBI are mishandling and downplaying the second assassination attempt on my life since July. The charges brought against the maniac assassin are a slap on the wrist.” And then he inserts with, in all letters, “LET FLORIDA HANDLE THE CASE.” What’s your reaction to that?

The attempted assassination on the former president was a heinous act. I’m grateful that he’s safe. And as I said, immediately after the event, the Justice Department would spare no resource to ensure accountability in this matter.

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Since then, our prosecutors and agents… only 10 days ago, our prosecutors and agents have been working around the clock to discover the necessary evidence to ensure accountability. In just the last few days, new information was developed and it was put in the evidence in the court for the detention hearing, which was necessary to ensure in the short term that the defendant in the matter would not be released while the investigation continues.

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As the United States said in that detention hearing, further additional charges will soon be filed. All of our top priority should be ensuring that accountability occurs in this case and that those who run for office and their families are safe and protected.

Will you cooperate with Florida officials that want to do their own investigation?

Our job is to ensure full accountability here. We always seek to cooperate and to get assistance from state and local law enforcement to the extent consistent with the law and appropriate with respect to the investigations.

[inaudible 00:23:10].

Hi there.

Sorry.

I had a couple of questions. You mentioned that a significant part of the annual 7 billion network fees that Visa receives actually stem from illegal conduct. Could you give us a clear idea, even ballpark, of how big that portion actually is? And then I have a quick second question on remedies.

Try the second one because the first one I’m going to have to go back to Doha for.

So, on remedies, I mean obviously given Visa’s scale as portrayed in the complaint, to what extent do you think it will be enough to pursue just to end, just the allegedly anticompetitive agreements or partnerships? And in a case like this, are structural remedies likely to be on the table? And if so, how would

So, I’ll let

… what those look like for a company like Visa.

So, I’ll let Doha answer that also. But as you know, in these cases, we begin with a liability finding and then at that point, we address what the remedies will be. But I’ll see if she can give you any preview.

Thank you.

Thanks, Stefani. I can probably answer them together. As you know, and as you’ll see when you look at the complaint, the fees that Visa has charged are a substantial part of its annual revenues. And the complaint also alleges that the US debit business and its profits from that business are a substantial part of Visa’s overall and global revenues every year. In terms of relief, as you know, in antitrust cases, the scope of any relief is based on a liability finding. And so it’s our job now to put on the best case that we can in court and ultimately the job of a court will be, if we are successful in proving up liability, to unfetter the markets of any found liability, including monopolization and to prevent the recurrence in the future. And that can be a range of potential things and it’s too early I would say, to speculate about what that would be.

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[inaudible 00:25:17], I have an on-topic and off-topic question.

Okay. I almost got the second one right so maybe I’ll be able to get this one right on topic too.

The Antitrust Division has brought a number of high-profile lawsuits in the last couple months, it’s currently trying a case against Google. Is there any concern that the division is stretching itself too thin in terms of being able to handle all of these cases at once?

No.

Okay. My off-topic question is can you tell us what more investigators have learned about the ideologies of Ryan Routh and whether investigators have definitively ruled out whether he was influenced or directed by any foreign entity?

So this is still early days’ investigation for a vent that only occurred 10 days ago. Not really, it’s an ongoing investigation. I can’t really talk about anything we didn’t put into evidence in the detention hearing yesterday. And so I can’t comment any further. All I can say is this is ongoing and we’re going to turn over every single rock we can.

Last question. Evan.

So quick on-topic question. We saw in the previous complaint with regard to Apple, there was some questions about the Apple Pay and the development of Apple Pay. I’m wondering whether, with regard to the complaint here against Visa, is it the belief of the Justice Department that without those partnerships, that consumers would have less costs in doing, for example, transactions using Apple Pay if Visa was not involved in whatever partnerships you guys are describing? Is there anything you can describe?

Yeah, I’m just give an attempt here and then I’m going to go back to Doha. No, our position is that if Visa faced competition in the debit transaction market, including from Apple, from Square, from PayPal, from any of the other potential companies, the fees would be less. And that since the cost to Visa is so tiny, it’s certainly possible to compete those down and to charge less for the fees. And that would mean Americans would see lower prices because part of the prices are being passed on. But let me ask Doha to give a more specific answer.

So the Attorney General is exactly right. To be clear, the allegations in the two lawsuits are very different. In the Apple lawsuit, one of many categories of conduct that we alleged was unlawful by Apple is that it foreclosed parts of the digital wallet in service of its core monopoly, which was the smartphone. Here, what we are saying is that Visa co-opted competition and feared potential entry of potential competitors like Apple, like Square, like PayPal to potentially displace its debit network.

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And so the beauty of competition, as all of us see it, is that if competitive forces are allowed to take hold unencumbered by monopolization, unencumbered by legal agreements, we would get benefits along price dimensions, along quality dimensions, along innovative dimensions that we cannot predict. And so it is for markets ultimately to serve the interests of consumers and we allege that Visa has forestalled that competition to the harm of consumers.

And my off-topic, if the Attorney General would come back to-

We should go out like this.

… Not so fast. So with, obviously, some of the threats to the former president, including ones from Iran and the persistent interference from both Russians and the Iranians, I’m wondering if you have a message or something you can say to voters as they get prepared to cast their ballots about your confidence in the integrity of the system, in the fact that people are going to be able to cast their votes for the people that they want without interference from foreign powers or from other [inaudible 00:29:35].

Yeah. I have complete confidence in the system, complete confidence that people will be able to have a fair vote and complete confidence that the United States government, all of government intelligence communities, as well as the law enforcement, as well as protective services like Secret Service, will be able to ensure that. I do.

Great. Thank you, everybody.

Thank you.

Thank you.