Visa Faces Antitrust Lawsuit from U.S. Department of Justice, Shares Drop by 5.5%

Visa’s shares took a significant hit after the U.S. Department of Justice (DOJ) filed a lawsuit accusing the company of violating antitrust law. The legal action alleges that Visa has stifled competition by charging merchants high fees and making payments to potential rivals to keep them from challenging its dominance in the debit transaction market.

As one of the largest payment networks globally, Visa processes over 60% of all debit transactions in the U.S., bringing in about $7 billion annually in fees collected when transactions are routed through its network, according to the DOJ. Prosecutors argue that Visa has maintained its dominance through agreements with card issuers, merchants, and competitors.

Following the news of the lawsuit, Visa shares dropped by approximately 5.5%.

Julie Rottenberg, Visa’s general counsel, strongly denied the allegations, stating that competition in the debit market remains robust. "The claims are meritless, and we will contest them vigorously," she said. "When businesses and consumers choose Visa, it is because of our secure and reliable network, world-class fraud protection, and the value we provide."

The DOJ’s move to address so-called swipe fees, or interchange fees, comes as part of the Biden administration’s broader push to tackle rising consumer prices, an issue at the center of the November 5 presidential election between Democrat Kamala Harris and Republican Donald Trump.

“Visa’s unlawful conduct affects not just the price of one thing, but the price of nearly everything,” said U.S. Attorney General Merrick Garland in a statement. He emphasized that merchants and banks often pass the costs of payment network fees on to consumers.

The DOJ claims that Visa’s anticompetitive conduct dates back to around 2012, when new competitors entered the payments market following reforms that required card issuers to allow unaffiliated networks to handle transactions. Prosecutors allege that Visa entered into profitable agreements with emerging financial technology companies, including Apple, PayPal, and Block Inc.'s Square, to prevent them from releasing products that could challenge Visa's dominance.

PayPal declined to comment on the lawsuit, while Apple and Block did not respond to requests for comment.

The lawsuit also accuses Visa of imposing “staggering financial penalties” on merchants who fail to route all or most of their eligible transactions through Visa’s network.

Prosecutors are seeking a court order from a Manhattan judge to prevent Visa from using pricing structures that suppress competition and paying off rivals not to compete. They argue that this would reinstate competition for debit payment processing services, both online and in physical stores.

The DOJ’s antitrust division began investigating Visa’s debit card practices in 2021, the same year it blocked Visa’s proposed acquisition of the financial technology company Plaid. Visa’s competitor, Mastercard, revealed in April that it, too, is under investigation by the DOJ over its debit practices.

Visa and Mastercard have been battling litigation for nearly two decades over their dominance in the credit card market. In 2019, both companies agreed to pay U.S. merchants $5.6 billion to settle claims in a class action lawsuit that accused them of engaging in anticompetitive behavior.

However, in June, a federal judge in Brooklyn rejected a parallel settlement that would have cut swipe fees by an estimated $30 billion over five years and required Visa and Mastercard to remove certain rules that prevent merchants from charging customers for using their cards.

Visa has set aside around $1.6 billion for potential settlements related to these and other U.S. cases over interchange fees.

By fLEXI tEAM