But what does that mean, exactly? In this article, I’ll lay out the Justice Department’s claims and explain how it affects you and your business.
Lawsuit Overview
The Justice Department’s civil antitrust lawsuit alleges that Visa engaged in unlawful conduct regarding debit card networks. It claims that Visa holds a monopoly in debit card network routing and uses its size as the largest credit card network to stifle competition in debit networks. Specifically, the lawsuit claims that Visa violates sections 1 and 2 of the Sherman Antitrust Act of 1890.The Sherman Antitrust Act
The Sherman Antitrust Act of 1890, often just called the Sherman Act, is a law intended to prevent companies from engaging in anti-competitive practices. The goal is to reduce monopolies and encourage free-market competition. Section 1 prohibits price-fixing agreements, exclusivity agreements that prevent businesses from using competitors, and market allocation agreements where would-be competitors artificially subdivide a market and each take pieces to avoid competition. Of course, there are plenty of situations where contracts restrict competition. Courts have typically held that the Sherman Act only applies if the contracts or agreements “unreasonably” restrict competition, which the Justice Department feels happens with Visa. Section 2 deals with monopolies. When a company in a dominant position in their market (meaning they have 50% or greater market share) uses anti-competitive practices, it can be seen as a violation due to the intention to create or maintain a monopoly. The goal is to prevent large companies from taking steps to crush smaller competitors and prevent true competition in a market. The Justice Department is using these two sections to accuse Visa of anti-competitive behavior by a business with a monopoly position in the market.Lawsuit Details
According to the lawsuit, at least 60% of all US debit transactions run on Visa’s debit networks. This sets the stage for Visa having a monopoly (50% or more) market share. The lawsuit alleges that Visa maintains that monopoly market share by imposing exclusivity agreements on both businesses and banks. The Justice Department claims that the agreements penalize any customers that try to route transactions to different debit networks, or signs agreements with would-be competitors to instead make them Visa partners. Those things, in turn, mean that Visa squashes competitors, protecting itself from competing in the open market. Since many people use debit cards every day, the Justice Department is alarmed by what it sees as a “systematic effort to limit competition for debit transactions.” The suit alleges that these anti-competitive practices have cost consumers billions in additional fees. As Attorney General Merrick B. Garland states, “We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market.”But what is Visa actually doing?
There are two different aspects to the government's allegations: disloyalty penalties and partnerships.Disloyalty Penalties
According to the lawsuit, Visa utilizes contracts that impose “disloyalty penalties” if not enough debit transactions are routed over Visa’s networks. These penalties are designed to discourage businesses from using other debit networks, even if the other networks would be less expensive. Choosing a debit network for transactions - known as debit routing - is addressed in the Durbin Amendment to the Dodd Frank Wall Street Reform and Consumer Protection Act. Businesses must be given an option of at least two unaffiliated debit networks for their debit transactions. In the government’s lawsuit, it alleges that Visa gets around that by requiring a large number of a business’s debit transactions to run on Visa’s networks. If the business doesn’t route enough of its debit volume through Visa, that business will incur penalties. Debit network routing is a confusing and often-overlooked aspect of card processing. I recently wrote an explanation of debit routing and how AI can help businesses secure lower debit transaction costs. If you want more context, that article is here: AI for Debit Routing. If the government’s allegations are true, this article is a good explanation of why the Visa contracts are a problem. A business choosing to use “smart routing” technology to find the lowest cost debit networks for their transactions could find themselves running afoul of Visa’s requirements to route a certain amount of their debit transactions over Visa’s networks.Partnerships
The lawsuit also alleges that Visa, concerned with startups that may offer a better or cheaper solution, intentionally interfered with competition. It claims that Visa paid any potential competitors to partner with them instead of offering their own product / network. Of course, not all business partnerships are illegal. However, in cases where the partnership is undertaken by a company with a monopoly market share and/or engages in anti-competitive practices designed to eliminate its own competition, it can be a violation of the Sherman Act. That is what the government alleges Visa is doing.Effects on Small Businesses
So what does this all mean for your business? If you don’t take a lot of debit cards, the impacts to you are minimal. If you take a lot of debit transactions, it’s a good idea to brush up on debit routing regardless of this lawsuit. You may be able to take advantage of lower cost debit networks for those transactions. But, given the allegations, it’s also a good idea to check with your processor to determine if you (or the processor) have any existing agreements specifying how much of your debit volume must be routed over Visa’s network. You can also look for any debit penalties on your processing statements. Credit (and debit) card processing is not cheap, and many businesses regularly look for ways to save a little more. Overpaying for credit and debit transactions means you’re leaving money on the table for no reason. If you need help determining if your costs are as low as possible, sign up for a free CardFellow account to compare real pricing for your specific situation in minutes. It’s free, private, and no obligation. And if you’re not ready to sign up, be sure to check this blog often, as we’ll post updates to lawsuits and any impacts on businesses like yours.
Ben Dwyer
Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing. As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.
