Visa's Very Bad Week
Apparently, padding profits monopoly style runs afoul of the law
I wrote last week about emerging legal trouble for Visa - a payment processing giant that earns $7 billion a year in transaction fees on debit cards alone.
In fact, a lawsuit filed by the U.S. Department of Justice (DOJ) notes that Visa charges $7 billion for debit payment processing annually in the U.S. alone.
And, well, the DOJ believes Visa is claiming this giant market share illegally.
Here’s how other writers are covering the bad news for Visa.
First, Fintech Business Weekly notes:
The Department of Justice’s antitrust suit reportedly stems from the agency’s 2020 lawsuit that ultimately scuttled Visa’s attempt to acquire open banking infrastructure company Plaid for $5.3 billion.
The new suit notes:
The complaint describes Visa has having the “largest, most powerful” debit network in the US, which has helped it drive nearly $19 billion in operating income and an operating margin of 64% in 2022. Visa’s operating margin in North America is even higher, at 83% in 2022. (emphasis added)
What’s Visa doing that’s so wrong?
The DOJ argues Visa has leveraged pricing structure, incentive payments, and penalties in how it has designed its contracts and routing agreements with merchants, payment processors, and issuing banks to unfairly maintain an illegal monopoly.
The result has been, even where potentially less expensive alternative processing options exist, that Visa enforces defacto exclusivity, the complaint alleges.
And Matt Stoller over at BIG describes the Visa problem this way:
In 2023, there were 57.6 billion debit transactions worth $2.8 trillion. And one company stands out as the dominant force in this area: Visa. 60% of debit transactions run through Visa’s payments network, with Mastercard at a distant second with 25%. This level of dominance is fruitful. Visa makes more from debit than credit cards at this point; its operating margins in North America are 83%, and its global revenue is over $32 billion a year.
How does Visa make money? Well it’s similar to the scam from the movies Office Space and Superman III, where it skims a small amount off of these billions of transactions. The illegal part, according to the complaint, isn’t the skim, which is just a fee for using a network. It’s that in the United States debit card market, Visa uses its market power to block rivals coming into the market with better prices or service. And that’s against the law.
While Visa MAY see some action taken to break up its payment processing monopoly - and maybe even a fine - it’s not in any REAL danger.
After all, Wells Fargo defrauded millions of consumers and still gets to casually operate like a perfectly legitimate banking enterprise.
Wells Fargo's Parasitic Parable
Steve Martin and Martin Short star in a mildly funny ad campaign for Wells Fargo that makes fun of friendships that take on a parasitic feel.