How will the Visa lawsuit affect businesses and customers?

US Department of Justice has sued the company for using its position to stifle competition and charge consumers exorbitant fees

More than 60 per cent of debit transactions in the US run on Visa’s debit network. AP

The US Department of Justice's recent lawsuit against FinTech major Visa is part of a broader global trend aimed at curbing the dominance of financial and technology giants. It could potentially create more competitive markets and reduce barriers for new companies, while also addressing the rising debit-fee burden facing consumers.

The case, which focuses on Visa’s monopolistic practices in the US debit market, highlights growing regulatory efforts to promote competitive markets, industry experts say. Such actions are also likely to have a ripple effect beyond US borders, with regions such as the Middle East paying close attention to these developments.

The National explores the lawsuit against Visa and delves into its potential future implications, both in the US and globally.

What is the lawsuit?

The DoJ filed a civil antitrust lawsuit against Visa for monopolisation and other unlawful conduct in debit network markets for breaching various sections of the Sherman Act, a key element of US antitrust legislation, enacted in 1890.

The complaint, filed in the US district court for southern New York, argued that Visa “illegally maintains a monopoly” by using its dominance to thwart the growth of its existing competitors and prevent others from developing new and innovative alternatives.

“Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market,” said US Attorney General Merrick Garland.

“Merchants and banks pass along those costs to consumers, either by raising prices or reducing quality or service. As a result, Visa’s unlawful conduct affects not just the price of one thing – but the price of nearly everything.”

US Attorney General Merrick Garland announcing the latest lawsuit against Visa at the Department of Justice on Tuesday. AP

Visa controls 60% of debit transactions

More than 60 per cent of debit transactions in the US run on Visa’s debit network, the complaint said. It enabled the company to earn more than $7 billion in fees each year for processing those transactions.

Visa has created a “web of exclusionary agreements” on merchants and banks that insulated it from competition. These agreements penalise customers who route transactions to a different debit network or alternative payment system, the complaint said.

“Visa also induces would-be competitors to become partners instead of entering the market as competitors by offering generous monetary incentives and threatening punitive additional fees ... [Visa] feared losing share, revenues, or being displaced by another debit network altogether.”

Will the lawsuit foster competition and protect consumers?

The lawsuit against Visa is part of a broader regulatory crackdown on dominant tech and financial giants, both in the US and globally, said Byron James, a partner at the UAE legal firm Expatriate Law.

Over the past few years, regulators have been increasingly concerned with the concentration of power in the hands of a few large companies, particularly in sectors such as FinTech, where control over critical infrastructure, like payment systems, can lead to monopolistic practices, Mr James said.

“The case against Visa is emblematic of this push to create more competitive markets, reduce barriers for new entrants, and protect consumers from potentially exploitative practices, such as excessive fees or reduced innovation,” he added.

In 2020, DoJ had filed another antitrust lawsuit to stop Visa from acquiring technology company Plaid, which develops online debit payment solutions. In 2021, the companies ended their planned $5.3 billion merger.

Competitive market

Businesses and consumers, with the increasing reliance on online and mobile banking, have boosted a surge in demand for FinTech solutions. Competition is also brewing, especially from smaller and regional players like India's RuPay and digital solutions from PayPal, Stripe and Ant Financial.

The global FinTech market is expected to reach $340.10 billion this year from $294.74 billion last year, according to India-based market research firm Fortune Business Insights. It is expected to jump to more than $1.15 trillion by 2032, increasing at a compound annual growth rate of 16.5 per cent.

Visa is the world’s largest payments company by revenue. Its revenue surged 10 per cent annually to $8.9 billion in the quarter ended on June 30, while its net revenue jumped 17 per cent to $4.9 billion.

Burdening customers

While the lawsuit has highlighted the increased burden of debit fees passed on to consumers, larger systemic issues continue to plague the industry and need to be addressed by authorities, industry experts said.

“We identified an alarming rate of instances where consumers pay five to seven times the actual processing fees in a single transaction due to poor accounting practices, incorrect back end calculations, and improper third-party coding on popular merchant tools used in the US,” said Yashin Manraj, chief executive of US-based technology maker Pvotal Technologies.

“Even if Visa fees are lowered or new competitors are introduced in the space, these gaps are unlikely to be addressed [by the lawsuit] and will still inflate consumer costs.”

What is Visa’s reaction?

The California-based company argued that the lawsuit is "meritless” and it would fight “vigorously” in the court.

“Today’s lawsuit ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving,” said Julie Rottenberg, Visa’s general counsel.

“Anyone who has bought something online, or checked out at a store, knows there is an ever-expanding universe of companies offering new ways to pay for goods and services.”

What does the lawsuit mean for the Middle East?

Although the lawsuit is focused on the US market, its impact could ripple across to other regions, including the Middle East, where Visa has a significant presence and influence over payment systems.

Visa operates across a number of jurisdictions and a precedent-setting case in one region often triggers re-evaluation of its practices in others, Mr James said.

“Regulatory bodies in the UAE and broader Middle East are increasingly aligned with international trends, and any structural changes in Visa's operations could lead to similar reforms or scrutiny in these regions," he said.

“This could open the door for more localised payment systems or regional players to gain ground, leading to increased competition. Regulators in the region may also take cues from this case, adopting stronger measures to ensure that global players do not hinder the development of home-grown solutions or stifle market diversity."

However, opening the market to new players brings increased responsibility, particularly when it comes to safeguarding customers' data and capital.

“If this leads to a wave of start-ups and new companies entering the space in Middle East, it could lead to a significant rise in fraud, a price increase in adopting new protocols and platforms passed on to consumers, and a severe risk to debit transactions until they can mature like Visa and MasterCard,” said Mr Manraj.