Overview

On September 24, 2024, the U.S. Department of Justice Antitrust Division (“DOJ”) filed a monopolization suit against Visa, Inc. (“Visa”), alleging that Visa has a monopoly in general purpose debit network services and general purpose card-not-present debit network services that violates Section 2 of the Sherman Act.[1] The DOJ also alleges that Visa has entered into illegal agreements not to compete with competitors and potential competitors, as well as unlawful agreements with merchants, issuers, and acquirers which unreasonably restrain trade.[2]

The lawsuit brings together two important strands—frequent antitrust challenges both by the DOJ and private parties (and other competition authorities around the world) to practices by Visa, MasterCard, and American Express, as well as the Biden’s Administration’s stepped-up use of Section 2.

Card companies have been defending antitrust claims for years—most notable of which was the dispute over American Express utilizing anti-steering provisions in its merchant contracts which resulted in the Ohio v. American Express Co. decision from the Supreme Court of the United States in 2018.[3] Visa and Mastercard have been subject to multidistrict litigation resulting from class actions and individual litigations over their credit card interchange fees to merchants since 2005.[4] Though this monopolization suit focuses on Visa’s dominant debit network, the complaint echoes some of the practices that the card companies have been scrutinized for over the years—including fee structures and contractual rules in Visa’s agreements with merchants and acquiring banks. 

Assistant Attorney General for DOJ Antitrust Jonathan Kanter has repeatedly said throughout the Biden Administration that Section 2 monopolization cases are fundamental to preserving a competitive economy and that he is intent on reviving enforcement of Section 2 after decades of it being “very near death.”[5] After a several year DOJ investigation, this suit follows through on that promise and follows a line of other monopolization suits brought under this administration—including those brought against Apple and Live Nation-Ticketmaster earlier this past summer.

The DOJ Complaint

Debit networks facilitate debit transactions, which are a kind of financial transaction where funds are drawn directly from a consumer’s bank account to pay a merchant for goods or services. Their success is dependent on the consumer’s bank connecting to the merchant’s bank, and these markets experience network effects (i.e., the network needs many debit card issuers and accountholders/payers on one side, and many merchants/payees and acquirers on the other to use the network, and the value of the network increases as scale is built on both sides of the network).[6] The DOJ alleges that Visa itself recognizes that building scale on both sides of the debit network is a herculean task, and the DOJ asserts that Visa uses its monopoly power to deny a level playing field for rivals and deprive them of scale.[7]

Central to the complaint’s theme is DOJ’s assertion that Visa’s strategy and conduct in response to the Durbin Amendment—passed by Congress in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act—successfully prevented its dominant network from competition. The Durbin Amendment requires issuing banks to include at least two debit networks that are unaffiliated with each other on every debit card—one on the front and one on the back; its objective was to open up competition. The DOJ alleges that Visa initially lost debit volume to other networks after the Durbin Amendment but subsequently used its dominant position in the market to limit competition and protect its monopoly.[8]

Visa contracts with both card-issuing banks and merchants so that consumers can use debit cards. As the largest debit network in the U.S., the DOJ alleges, Visa “leverages its intermediary role not only to set rules for transactions on its own network but also to influence the rules for all other debit networks.”[9] The DOJ alleges Visa is the front-of-card network[10] on over 70% of debit card payment volume in the United States.[11]

The DOJ complaint also alleges that Visa maintains its monopoly in debit by “preventing competitors from gaining the necessary scale to challenge Visa and by co-opting would-be competitors.”[12] Visa does this by locking up debit volume with de facto exclusive agreements which have the practical and economic effect of requiring exclusive routing on the merchant and acquirer side and by paying issuers to refrain from taking actions that would make it possible for merchants and acquirers to route to competitor PIN networks.[13] Visa also successfully entered into arrangements that in practice forced potential competitors (e.g., digital platforms such as Apple Pay, PayPal, and Cash App) to agree not to introduce or support alternatives to Visa’s traditional card-based debit rails.[14]

The DOJ alleges that merchants and acquirers are willing to accept de facto exclusive deals with Visa because they have a substantial number of non-contestable debit transactions that the merchants cannot route to any other network.[15] DOJ alleges that Visa has “engaged in a relentless strategy of locking up the entities that control routing decisions and has now entered de facto exclusive routing contracts with over 180 of its largest merchants and acquirers.”[16] These contracts cover over 75% of Visa’s debit volume and foreclose at least 45% of total U.S. debit volume.[17]

Visa’s contracting practices create barriers to expansion for other debit networks—in addition to other barriers to entry relevant of the industry, including brand recognition, regulation, and network effects present in a two-sided market. DOJ alleges Visa recognizes and exploits these barriers to entry—including switching costs and network effects—to protect itself from competitor debit networks and potential competitors.[18] DOJ also alleges Visa is able to set prices without regard to its costs, price discriminate between various industry groups, and impose new fee structures without losing debit volume.[19]

The DOJ requests that the court enjoin Visa from its anticompetitive practices, including bundling its credit services with debit, imposing cliff pricing structures, referencing rivals for debit transactions in its contracts, imposing fees on debit transactions routed through non-Visa networks, limiting the number of back-of-card networks on Visa branded cards, agreeing not to compete, imposing contractual limitations on the use of payment methods and payments rails (potential competitors), and imposing contractual limitations on the ability of customers to offer their own payment networks or methods or adopt technologies that disintermediate Visa.[20]

Conclusion

We expect Visa to vigorously defend the suit and preserve its business model. Amex’s split victory in the Supreme Court will likely reinforce Visa’s instincts in that regard.

The DOJ’s suit is a continuance of the years-long scrutiny of fee structures and contractual practices with one side of the market (e.g., merchants and acquirers) in credit and debit networks. The case comes after a series of high-tech monopolization cases this past summer from the DOJ and will reveal some of the challenges faced by antitrust plaintiffs post-AmEx. Mintz continues to monitor Section 2 enforcement by the U.S. antitrust agencies in this and other markets. 

[1] See Complaint (hereafter “DOJ Complaint”), United States of America v. Visa Inc., No. 1:24-CV-7214 (S.D.N.Y. Sept. 24, 2024).

[2] Id. at 66-68.

[3] See Ohio v. Am. Express Co., 585 U.S. 529 (2018).

[4] See In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, 1:05-MD-01720 (E.D.N.Y.).

[5] Antitrust Enforcement: The Road to Recovery, Remarks as Prepared for Delivery by AAG Jonathan Kanter (April 21, 2022).

[6] See DOJ Complaint at 6-7.

[7] Id. at 10.

[8] See id. at 7-8.

[9] Id. at 14.

[10] For a number of reasons, some transactions (“non-contestable” transactions) must be routed to Visa and are not available to back-of-card competitors under any circumstances.

[11] DOJ Complaint at 26.

[12] A “PIN network” is a debit network that grew from originally facilitating ATM transactions for which accountholders needed to enter a four-digit PIN to withdraw cash funds. 

[13] DOJ Complaint at 26. 

[14] Id.

[15] Non-contestable transactions are those that Visa owns outright without facing any competition. For various reasons, Visa may be the only network available for both the merchant and issuer to use for these transactions.

[16] DOJ Complaint at 36.

[17] Id.

[18] Id. at 62.

[19] Id. at 63.

[20] Id. at 69-70.