Visa earns $7 billion in the US annually! The Department of Justice accuses Visa of illegal payment monopoly. Is this an opportunity for blockchain?

The U.S. Department of Justice (DOJ) has filed a civil antitrust lawsuit against Visa, accusing the payment processing giant of monopolizing the debit card network market. The lawsuit alleges that Visa violated the Sherman Act by unlawfully maintaining a monopoly position and suppressing competition.

Visa's Dominance in the U.S. Signature Card Market

The Department of Justice alleges in the lawsuit that Visa processes over 60% of signature card transactions in the United States, collecting over $7 billion in fees annually. According to the lawsuit, Visa leverages its dominant position in the market to impose exclusive agreements on merchants and banks. The Department of Justice believes that these practices block transaction volumes of signature cards, hinder competition, and prevent the growth of smaller, more cost-effective competitors.

Visa's Anti-Competitive Strategies

The lawsuit also claims that Visa uses its influence to force potential competitors to become partners.

The company is said to offer monetary incentives or threaten punitive fees to prevent new competitors from challenging its dominant position. According to the complaint, Visa's strategy is to cooperate with competitors to protect its market share and revenue. The Department of Justice points out that this allows Visa to charge fees far beyond what a competitive market would bear.

The Attorney General stated: "We allege that Visa illegally maintains power to charge fees far above what a competitive market would bear, passing these costs on to consumers through merchants and banks either raising prices, lowering quality, or both. As a result, Visa's misconduct affects not just the price of a single item, but the price of almost all goods."

• Squeezing out smaller signature card networks: Visa allegedly uses its influence to impose significant transaction volume commitments on merchants, banks, and financial institutions issuing signature cards. The pricing structure of these commitments penalizes the use of competitors' signature card networks, effectively channeling the majority of signature card transactions into Visa's system.
• Blocking tech companies from entering: Visa remains vigilant against tech companies and fintech startups that attempt to provide innovative and lower-cost payment solutions. To prevent these companies from disrupting its role as an intermediary, Visa has agreements with them that transform potential competitors into partners. A former CFO of Visa summed up this practice by saying, "Everyone is a friend and partner, no one is a competitor."

The Significance of Signature Card Transactions in the U.S.

The Department of Justice states that signature card transactions are a significant component of the U.S. financial system, with millions of Americans using signature cards for online and offline shopping. Visa's dominance in the signature card network market allows it to charge high fees and stifle innovation in payment systems. The Department of Justice believes that Visa's actions result in consumers and businesses paying billions of dollars in additional fees and impede technological advancement in the industry.

The Department of Justice said: "Anticompetitive conduct by companies like Visa puts the American people and our entire economy at a disadvantage. Today's action against Visa serves as a reminder that the Department of Justice will not hesitate to enforce the law for the American people against those who seek to suppress competition rather than compete on price or invest in innovation."

Visa's History of Monopolistic Behavior: Plaid Merger Case

This lawsuit is not Visa's first scrutiny by the Department of Justice. In 2020, the Department of Justice filed an antitrust lawsuit to block Visa's acquisition of Plaid, a fintech company that provides online signature card payment solutions. The acquisition, valued at $5.3 billion, was ultimately abandoned by both parties under the intervention of the Department of Justice.

Visa, headquartered in San Francisco and incorporated in Delaware, continues to hold considerable market influence. In 2022, the company reported global revenue of $18.8 billion, with an operating profit margin of 64%. North America remains its most profitable region, with an operating profit margin of 83% that year. In the U.S. alone, Visa collects approximately $8 billion in network fees annually for signature card transactions and processes a total payment volume of $12.3 trillion globally.

The Department of Justice Aims to Restore Competition in the Payment Market

The Department of Justice hopes that through this lawsuit, competition in the signature card market will be restored, protecting consumers and businesses from high fees and limited payment options. The Department of Justice calls for the establishment of a more competitive market to promote innovation and better cost management.

The Department of Justice stated: "Visa fears competition and innovation but chooses illegal collaboration and monopolization. Visa abuses power, sacrificing American consumers, merchants, banks, and competition in exchange for buying off potential competitors."

Blockchain Payment Opportunities Arise?

Current payment systems often take several days to settle, especially in international transactions. However, blockchain technology can provide real-time transaction confirmation, even settling within seconds. This is a huge advantage for merchants and consumers who require fast payments or settlements. Additionally, Visa and other payment networks typically charge merchants high transaction fees, while payment systems on the blockchain can significantly reduce such costs, especially for cross-border payments, saving on remittance fees and time.

Visa's monopolistic behavior to some extent hinders innovation and competition in the payment market, while the development of blockchain technology can introduce more participants, promote diversity and competition in payment networks. This competition is not only beneficial for merchants and consumers but may also drive upgrades and innovations in payment technologies and services. However, the development of blockchain in the payment sector still faces challenges such as compliance issues, scalability, transaction processing speed, and adoption, which will require time and technological advancements to address.

Overall, blockchain holds tremendous potential for payment innovation, aiming to improve the shortcomings of current payment systems through its unique technological advantages, increase market competition, and provide a better payment experience for merchants and consumers.