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Insights and Expertise

This could increase the market share of other payment
In the United States, debit cards systems like ACH, FedNow and RTP in pay-by-bank
account for only 30 percent of transactions.
consumer payments. Alternative Moreover, the absence of these routing incentives means
payment options comprise the debit interchange rates might become a key factor in rout-
ing decisions, potentially driving rates down. Declining
remaining 70 percent, suggesting debit card network volume coupled with lower inter-
change rates could impact checking account profitability,
the payments ecosystem remains potentially leading banks to introduce new fees to recover
competitive. lost revenue.

Should the case proceed, Visa might face limitations in
and acquirers. Merchants were given explicit con- its ability to use pricing, incentives and contract terms to
trol of routing transactions across two unaffiliated secure debit volume. A court decision to nullify existing
networks, which promotes choice in the routing Visa agreements could force the company to pursue alter-
process. native strategies to sustain its business.

• Incentives loophole: Although Reg II provided Restrictions on Visa will cause ripples for other dual mes-
merchants with routing choices, it did not prevent sage networks, especially when contracts renew or if regu-
networks from incentivizing acquirers or merchants lators make changes to Reg II. Mastercard and other com-
to favor a particular network. This could be a poten- petitors might be presented with an opportunity to gain a
tial loophole challenging the DOJ's case. larger market share in the potential wake of Visa's weak-
ened dual-message debit volume.
• Lack of consumer benefits: There is evidence in-
dicating that the adoption of Reg II did not result Meanwhile, single message networks could benefit from
in lower prices for consumers. Both the Federal Re- the absence of Visa's merchant incentives by gaining a
serve Bank of Richmond and the University of Chi- larger share of transactions and potentially offering low-
cago found that consumers did not experience lower er debit interchange fees as existing agreements expire.
retail prices. These benefits all assume such networks are not preclud-
ed from engaging in the same strategies as Visa.
In some instances, consumers were in a worse
position following the Reg II changes. Additionally, Large merchants may also find themselves in a favorable
a study conducted by George Mason University position to negotiate new pricing and routing terms with
found that Reg II resulted in about one million networks and acquirers. These changes could lead to more
people, mostly low-income families, losing access to transactions toward competing debit networks but might
the banking system. increase merchant fees.
• Sufficient competition in the Payments landscape: Acquirers could also see a drop in profitability as they lose
In the United States, debit cards account for only out on incentives from Visa and other networks. Fintechs
30 percent of consumer payments. Alternative pay- and emerging payment systems such as PayPal and Block
ment options comprise the remaining 70 percent, would likely promote lower-cost methods like ACH and
suggesting the payments ecosystem remains com- instant payment rails to their users.
petitive. This could weaken the DOJ's assertion of
Visa's monopoly. Issuers, acquirers and merchants can be expected to lever-
How the industry should prepare age the DOJ action to negotiate improved contracts with
all card networks, including Mastercard and single mes-
There could be significant changes in the U.S. payments sage networks. The lawsuit is still playing out in court, but
landscape if the DOJ prevails in its case against Visa. As payment industry leaders should begin planning for po-
a result of this uncertainty, issuers, acquirers, merchants, tential implications.
networks and fintechs may need to open the hood of their
current agreements and evaluate the commercial models Leanne Lange is the managing director for SRM's Banking and Payments
driving their operations.
Practice. She has over two decades of experience in the banking indus-
Based on the legal outcome of the case, regulators could try, advising leading financial institutions on their strategic initiatives.
make further amendments to Reg II, potentially creating Contact her via LinkedIn at linkedin.com/in/leanne-lange-7b98a86.
new transaction processing standards to prevent networks
from imposing routing restrictions or offering growth in-
centives through debit card contracts.

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