While the ghost of the “Credit Card Competition Act of 2023” still lurks in Congress, the US government furthered its sights on fair competition as the Department of Justice (DOJ) announced a lawsuit against Visa, alleging Visa has engaged in monopolizing the debit network markets, entering into unlawful agreements to restrain trade, and violating the Sherman Act. This suit, alongside the Credit Card Competition Act, demonstrates the government will continue to ensure competitiveness for U.S. merchants in the payment processing space and to pursue remedies that will lower merchant processing fees.
Jim DuBoyce, Managing Director of Payments at W. Capra Consulting Group, shared, “While the resolution to this lawsuit will not be quick (it may be years before some type of settlement is reached) nor a panacea for a merchant looking to manage their costs and contracts as it pertains to payment acceptance, it’s a strong reminder that keeping your contract terms as short as possible, providing for early termination, and allowing for cost reduction and flexibility are key. This is not the first time Visa has been accused of anti-competitive behavior and there is no doubt in my mind that it will not be the last. It would not surprise me if the DOJ and the merchant community already have other lawsuits being worked that will follow this one.”
DuBoyce also commented, “What is particularly concerning is the way that Visa, as alleged in the complaint, has cornered the market for debit card processing – the government alleges Visa has over a 60% share of the debit market and operating margins of 83% – and has successfully circumvented the Durbin Amendment provision for multiple routing options on debit transactions. Durbin was intended to increase competition among the networks and Visa has masterfully conspired to increase their dominance while giving the illusion of competition.
Through a combination of (a) “incentive pricing” to merchants that actually penalizes them for routing transactions to competing networks, (b) paying potential competitors not to compete with Visa, and (c) providing financial incentives to debit card issuers to include Visa as one of the two required networks, Visa has come to dominate the debit market and eliminate fair competition.”
What does this lawsuit mean for me today?
As this lawsuit was just announced at the end of September, merchants will not see a point of finality for years to come. Erika Curtis, Lead at W. Capra shared, “This will be an important area for merchants to keep an eye on- if you have an upcoming technology refresh or are considering changes to your payment acceptance environment, it would be prudent to integrate alternate payment routing or alternate payment methods into your scope and determine the savings; being mindful that signing long-term, binding contracts is not always going to be the best path right now, either, even if the incentives or cost reductions are appealing, there may be something even better on the horizon.”
Added DuBoyce, “While a preferred routing agreement may offer short term savings to merchants, it may come at the expense of true competition that would result in greater cost savings, improve service and lead to innovation from new entrants.”
What are the possible remedies to this complaint?
In Section XI of the complaint, the DOJ requests that the Court enjoin Visa from engaging in a range of anticompetitive practices including:
- Bundling credit services or credit incentives with debit network services
- Imposing pricing structures such as “cliff pricing” that penalize customers, and eliminate or discourage competition
- Referencing rivals to Visa in Visa contracts
- Imposing fees on transactions routed over non-Visa networks
- Limiting the number of non-Visa networks on Visa-branded cards
- Agreements not to compete with Visa
Are these remedies enough?
While these remedies may help encourage future competition, they do not go far enough. Visa has a long history of anticompetitive behavior and has settled a number of suits with the government and the merchant community – none of which have changed their behavior. Visa is a “serial offender” that violates the law then ultimately settles its way out of trouble.
We believe the market for credit and debit network processing services is broken and results in higher prices and decreased competition. The government should consider some of the same types of remedies as proposed for large tech companies (e.g. Microsoft, Google, Apple) or move to further regulate the credit and debit processing markets. Specifically, they should consider some or all of the following:
- Forcing Visa (and others) to divest either their debit network processing or their credit network processing. This action would create more competition than a remedy that bars them from bundling credit and debit pricing.
- Either eliminate incentive payments and agreements made with issuers, competitors, of potential competitors or require Visa to disclose them in regulatory filings.
- Prevent Visa from investing in competitors or potential competitors, or limit their investment level, and/or require such investments to be disclosed and approved by appropriate regulators
- Reintroducing the Credit Card Competition Act in the next congress.
- Actively enforcing the Durbin Amendment routing provisions to give ALL merchants a choice in routing of debit transaction including all Card Not Present and all Card Present transactions where PIN debit is not supported.
- Regulating interchange AND network fees for both credit and debit transactions.
- Encouraging the Federal Reserve to accelerate the support for, and implementation of, real time payment methods for C2B and B2B transactions.
I already have a day job, how am I supposed to keep up with Congress and the Department of Justice ongoing activities?
Keep your lawyer on speed dial, and know that at W. Capra, we work tirelessly to remain at the forefront of retail technology, facilitating payment acceptance and cost optimization. We have helped myriad clients implement customized processing solutions, optimize their debit routing and cost of acceptance, and ensure that their processes are well thought out and operationally viable. DuBoyce elaborated, “Working with W. Capra on these complex, multi-faceted programs will give your organization access to our wealth and depth of experience in this arena. We have the ability to ask the right questions and push to get programs in place that work for merchants. Many of our clients love a retainer model with us where we can regularly share the industry knowledge that we amass through our deep experience.”
Jim DuBoyce and Erika Curtis care deeply about leading W. Capra clients in reducing their cost of payment acceptance and corresponding impacts. For further discussion, contact Jim DuBoyce at [email protected] or Erika Curtis at [email protected]
