The Department of Justice (DOJ) recently sued VISA, accusing it of illegally monopolizing debit markets. According to the DOJ, VISA violated Sections 1 and 2 of the Sherman Act by employing business practices that allegedly restricted competition. This is not the first time the DOJ has targeted VISA. In 2020, the DOJ managed to block VISA’s attempt to acquire Plaid, a financial technology startup.
VISA currently handles 60% of debit transactions, with MasterCard trailing far behind. The DOJ claims VISA has maintained this dominance by “using its dominance to thwart the growth of existing competitors and prevent others from developing new and innovative alternatives.”
However, the DOJ’s case is less straightforward than it might appear. The civil antitrust lawsuit identifies three key practices by VISA: (1) exclusionary agreements, (2) acquisitions of new competitors, and (3) non-compete agreements. These practices, DOJ claims, allow VISA to charge a monopolistic fee. However, these practices are voluntary and common in most competitive markets. Moreover, they come at a cost to VISA. Acquiring a new startup is not free of charge. And Apple, the other party in question, stated that VISA never created an agreement restricting its right to compete.
In markets characterized by network effects, like payment technologies, a large market share does not necessarily indicate an illegal or inefficient monopoly. Users naturally gravitate toward the network with the most connections, as it offers greater utility. For instance, the more consumers and merchants that use VISA, the more attractive it becomes to others. This dynamic explains why successful network-based businesses often dominate their markets, much like Twitter (now X) is by far the microblogging platform with the largest market share. Unfortunately, the Sherman Act is written broadly enough to interpret effective competition as monopolistic behavior, even when firms succeed by outperforming rivals.
Despite these concerns, the payments market does not appear monopolized. Numerous alternatives exist to debit cards, including Apple Pay, Google Pay, Venmo, CashApp, and PayPal. Consumers freely and voluntarily decide to use VISA more than other alternatives. Many of these competitors have operated for over a decade, indicating a market with healthy competition. Additionally, the Durbin Amendment to the Sarbanes-Oxley Act mandates that every debit card include at least two networks, de facto ensuring competition for VISA. Furthermore, a legal cap on debit card processing fees limits pricing flexibility, which benefits the provider with the largest network.
The trend of suing companies with significant market shares for alleged monopolistic practices creates uncertainty and risk in the private sector. If the government seeks to foster competition, there are more constructive ways to achieve this. For example, it could promote a regulatory environment favorable to emerging payment technologies like Bitcoin’s blockchain. Instead, government actions often hinder cryptocurrency adoption. Similarly, the government could support the Clearing House’s Real-Time Payment (RTP) system. Instead, it grants monopoly power to its own FedNow system by enlisting only the latter for Treasury operations.
Ensuring a competitive environment is a commendable goal, but it is better achieved by reducing inefficient regulations rather than targeting firms that have secured market dominance through legitimate competition.
