The practice of scanning Credit or Debit cards for virtual payments has become a habitual activity for the majority of people. In the US (United States), both keen-eyed users and Antitrust authorities have noticed that the Visa’s monopoly has exceeded the legal boundaries. Therefore, the Department of Justice (DOJ) has decided to file a lawsuit against Visa for the abuse of its state monopoly of debit cards.
This issue will focus on tackling the reasons behind the US antitrust authority’s decision to file a lawsuit against Visa, whilst also examining the broader workings of the US antitrust system. Before delving into the legal aspects arising from the case, it is essential to clarify the concept of a debit card.
Debit Cards: What Are Them?
To the majority of people, a debit card is just a physical instrument, generally made of plastic. Yet, its utility goes beyond this simplified conception. In fact, a debit card is characterized by several aspects, one of its principal components being a magnetic strip, necessary to complete the purchases desired by the owner.
Differently from credit, debit cards can solely be utilized if enough money is in the linked bank account to cover the expenses. In the opposite scenario, the transaction would be denied.
Besides that, debit cards and credit cards share lots of similarities, such as the digit card numbers, expiration dates, or EMV chips. Both are useful for online purchases, with one aforementioned crucial difference: debit cards allow the user to spend money through bank funds, while credit cards allow the user to borrow money from the card issuer up to a certain limit.
With a debit card, money is directly deducted from a consumer’s checking account, rather than on loan from a bank or card issuer. There are three types of debit cards:
Standard debit cards, which draw on the user’s bank account;
Electronic benefits transfer (EBT) cards, issued by a public institution to allow qualified users to use their benefits to make purchases; and
Prepaid debit cards, which allow users to make electronic purchases up to the amount preloaded onto the card.
An advantage of debit cards is that there is no danger of racking up debt, as is the case with credit cards, with which the user spends the bank’s money to be repaid with interests. Another important advantage is that there is no annual fee, nor a fee for withdrawing cash at the bank’s ATM. Conversely, unlike with credit cards, there is no cash back with debit cards.
Monopoly Antitrust laws in the US
In the US, a series of statues exist both at a federal and national level, which inform and govern the enforcement of antitrust laws. The main acts to consider are the Sherman Act, the Clayton Act, and the FTC Act.
For what concerns the case at stake, the second section of the Sherman Act requires in depth analysis as it pertains to monopolization. However, the other sections are also important. The provisions of the Sherman Act are also supported by Clayton Act provisions, which address issues related to price discrimination, exclusive dealings and tying arrangements.
Focusing now on the Section 2 of the Sherman act, it clearly frames three different situations that can occur in the market, namely "monopolization", "attempted monopolization", and "conspiracy to monopolize". More broadly, this section states that to "monopolize, or [to] attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations…". Moreover, the Sherman Act specifies that these kinds of conducts may invoke civil or criminal liability.
In the present case, the focus is on monopolization. According to the Sherman Act, monopolization requires:
Monopoly power and
The willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.
For what concerns the first element, it is "settled law" that the offense of monopolization requires "the possession of monopoly power in the relevant market". It is the second element that provides further clarity. In fact, in order for the offense of monopolization to be established, monopoly power alone is not sufficient, as "exclusionary" or "predatory" conduct must concurrently occur.
Enforcement
The power to enforce antitrust laws lies with two authorities, which cooperate and have complementary tasks: on the one hand, there is the Federal Trade Commission (FTC), while on the other there is the Department of Justice (DOJ) Antitrust Division.
The FTC has specific competence and invests its resources in certain economic sectors, such as health care, professional services, food, or energy. The DOJ Antitrust Division plays a crucial role in promoting competitive markets, with wide-ranking responsibilities, to ensure fairness in businesses and the protection of consumer welfare. Before opening an investigation, both agencies consult with one another to avoid a duplication of effort.
Antitrust investigations assess whether companies are engaging in unfair competitive practices e.g. monopolization, collusion, or unfair mergers. The investigation requires gathering of evidence, interviewing witnesses, and analyzing markets to determine whether laws have been breached.
VISA as a company
Visa is a global digital payment technology company that serves individual and commercial clients as well as financial institutions and government entities. Visa's main duty is to facilitate global e-commerce through digital payments and information. Its well known transaction processing network, VisaNet, conducts clearing, authorization, and settlement of payment transactions.
The company's portfolio of offerings consists of a variety of services which stretch from mobile and commercial payments to transaction processing services and extend to other digital services. The main focus areas of the company are the Americas, Europe, Africa, and the Middle East. Despite its diverse range of activities, the company headquarters are in the US, precisely in Foster City, California.
In recent years, and specifically in 2023, Visa Inc. has experienced a significant growth, which has been summarized as follows by the CEO Ryan McInerney in the annual letter to the shareholders: "We have built one of the most innovative, convenient, reliable and secure payment networks in the world, and we are putting it to work to deliver our purpose. Today, Visa’s network spans more than 200 countries and territories, approximately 14,500 financial institutions, more than 130 million merchant locations and 4.3 billion payment credentials. All told, during our FY23, the Visa network enabled $15 trillion in total volume and 276 billion transactions".
Debit Cards market in the US
The Federal Reserve reports that from 2018 to 2021, the value of card payments increased at a faster rate than in any previous three-year period. This growth is attributed not only to inflation, but also to the rising number of American citizens’ use of credit and debit cards. According to the Federal Reserve, in 2021, there were 157 billion card transactions, up from 132.7 billion in 2020.
According to the Nilson Report, the total purchase volume on general-purpose credit and debit cards in the US reached $10.4 trillion in 2022, reflecting an 11% increase from 2021. Of this, credit cards contributed $5.6 trillion, while debit and prepaid cards accounted for $4.9 trillion.
The US cards and payments market is projected to reach an annual transaction value of $10.6 trillion by 2024, with a compound annual growth rate (CAGR) of over 5% from 2024 to 2028. The US payments market is highly developed, with financial institutions extensively serving the population. Moreover, widespread access to advanced financial services has led to a population that is very familiar with debit, credit, and charge cards for transactions.
Visa Presence in the US
Visa is the dominant player in the US credit card market, commanding the largest share of both purchase volumes and transaction counts. In 2023, Visa processed approximately $6.65 trillion in purchase volume, representing about 56.6% of the US credit card market. Additionally, Visa led with 212.6 billion transactions, or 51% of all card transactions in the US.
As a global leader in digital payments, Visa plays a central role in facilitating transactions across more than 200 countries and territories. Within the US, Visa connects over 14,500 financial institutions and supports transactions at around 130 million merchant locations, underscoring its expansive reach and influence.
Visa continues to innovate and expand its footprint in the US, including strategic expansions such as opening a new office in Atlanta in 2022, aimed at enhancing its client services and supporting local communities. Its network, VisaNet, supports a large volume of transactions globally, ensuring secure and efficient payments.
Visa's technological innovations, such as the push for contactless payments, continue to shape the future of US payments, enhancing convenience and security. This positions Visa as an integral part of the financial ecosystem, not only as a leader in market share but also as a driving force in payment technologies.
The Lawsuit
On the 24th of September, the Department of Justice (DOJ) filed a major antitrust lawsuit against Visa, alleging that the company has unlawfully maintained a monopoly over debit card services, limiting competition and innovation in the payments industry, and by consequence harming not only other firms, but also American consumers and businesses.
According to the Department of Justice, Visa maintains its dominant position not by competing on a level playing field with the other competitors but by insulating itself from competition through exclusionary measures. Visa uses its size and scale - estimated at more or less 60% of all national transactions - to penalize those who would switch to a different debit network or to companies that could create alternative debit means. Moreover, its dominance is used to limit the growth of existing competitors and to deter others from developing innovative alternatives.
The lawsuit includes a series of key allegations based on the already mentioned Sherman Act, which can be summarized up as follows:
Illegal monopoly operations
Exclusionary practices
Co-opting competition
The main consequence of the highlighted problems is that they end up affecting not only other companies, but also Americans in general, resulting in limited choice, higher prices, and slowed innovation.
What Next for Visa?
This lawsuit can be viewed within the broader picture of an increasing number of antitrust scrutiny of technological companies, such as Google, Apple, Amazon and Meta. The reason for this can be attributed to the growing dominance of a small number of Tech companies within that particular sector.
Ultimately, the lawsuit aims to restore competitiveness in the market and reduce the financial burden being placed on the consumers.
Bibliography
Comments