Merchants cheer DOJ going after Visa

Merchants are cheering the Department of Justice civil lawsuit alleging Visa monopolizes the debit card network business in violation of federal antitrust laws. The lawsuit also includes allegations that Visa entered into agreements that hindered the expansion of competing networks and also blocked technology companies from entering the market.

Groups representing retailers, while cheering the DOJ lawsuit, complained it doesn't go far enough.

"The DOJ is taking action on Visa's debit practices but that is just the tip of the iceberg," said Stephanie Martz, chief administrative officer and general counsel at the National Retail Federation. Martz complained that Visa blocks competition in both the credit and debit card arenas, raking in "billions of dollars in profits" from Main Street merchants.

Doug Kantor, general counsel at the National Association of Convenience Stores, echoed Martz's comments. "This is further evidence that that Visa has regularly blocked competition in the debit card market," said Kantor, who also sits on the executive committee of the Merchants Payments Coalition. "While this case is focused on debit cards, it shows how we desperately need competition over credit card swipe fees, which currently face no competition at all."

Visa will fight vigorously

James Huber, managing partner at Global Legal Law Firm, said, "Visa clearly has a monopoly" with regard to debit cards. Mastercard, processors and ISOs require gateways on the front end to route transactions for clearing and settlement, Huber explained. "Visa, however, can do it themselves," he said. "Thus, they are clearly the Goliath in the room."

No one expects Visa to stand by idly in the face of the DOJ's allegations. "Visa will put a lot into fighting this, and they have literally unlimited money," Huber said.

"We expect Visa to vigorously defend the suit and preserve its business model," Bruce D. Sokler, chair of the antitrust practice at the law firm Mintz, and Payton T. Thornton, a Mintz associate, wrote in an analysis posted to the law firm's website. They pointed to a 2018 U.S. Supreme Court ruling that American Express did not violate antitrust laws with anti-steering provisions in its contracts with merchants, to support their viewpoint. Justice Clarence Thomas wrote in that High Court decision that credit card networks create "two-sided platforms" that "differ from traditional markets in important ways."

Because card companies deal with both merchants and consumers, anticompetitive challenges need to take into account the effect on both, the majority of justices reasoned. AmEx offers a rewards program to promote competition by attracting affluent customers. The higher fees merchants pay to process AmEx transactions than, for example Mastercard or Visa card payments, are necessary to cover the costs of its rewards program the justices asserted.

Merchants have options

Karen Webster, CEO of Market Platform Dynamics and payments industry expert, argued in a recent analysis on the website PYMNTS that the DOJ lawsuit and its champions are misguided. The four-party network model built by Visa (followed by Mastercard) in the 1960s has benefited merchants greatly, she wrote.

She noted that under the Durbin Amendment to the Dodd-Frank Act, among other things, merchants have the option to route debit transactions across any PIN debit network. And there are 10 of them, including Visa's Interlink and Mastercard's Maestro networks.

The lack of transactions running across alternative networks may have something to do with merchant confidence, Webster suggested. "Maybe they aren't confident that those transactions won't be falsely declined or have the same level of fraud protection" that they receive from Visa.

"Visa has invested tens of billions into upgrading their network to prevent fraud and cyberattacks, and to keep the network operating at peak resiliency so that merchants can provide a safe, reliable payments experience for their customers," Webster wrote.

Webster also challenged the DOJ's assertion that Visa has blocked competition from financial technology companies, noting that fintechs have benefited from piggybacking on the card networks to create merchant acceptance thus eliminating the cost and complexity of building merchant acceptance from scratch.

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