Nam Y. Huh/AP Photo
The Biden Justice Department and Federal Trade Commission keep breaking new ground in their efforts to revive antitrust enforcement against a capitalist system that grows ever more concentrated and abusive. The latest major action is a Justice Department suit filed Tuesday against Visa, which along with Mastercard has an effective duopoly in credit card networks.
Visa’s market share in merchant debit payments is about 60 percent. It takes in around $7 billion a year in swipe fees, in a credit card market that totals about $4 trillion in annual transactions. The suit documents how Visa uses a combination of illegal carrots and sticks to suppress competition and maintain the market dominance that allows it to charge the excess fees.
Whenever you use your credit card, the merchant gets only about 97 to 98 cents on the dollar. The rest is kicked back to Visa and the bank that issued the card. This amount would be a lot lower if there were more competition among credit card companies. You might not notice the extra two or three cents, but Visa sure does.
“Visa maintains its dominant position,” according to the suit, “not by competing on a level playing field but by insulating itself from competition through exclusionary and anticompetitive means. Visa uses its size, scale, and centrality to the debit transaction ecosystem to penalize those who would switch to a different debit network or to companies that could develop alternative debit products.”
Visa has treated such fintech innovations as Apple Pay and PayPal as an existential threat to its monopoly pricing power. The Justice Department quotes Visa board of directors’ materials, which admit that Visa’s strategy has been to “partner with emerging players before they become disruptors.” So Visa offers lucrative incentives, sometimes worth hundreds of millions of dollars annually, “to these potential competitors under the express condition that they do not develop a competing product or compete in ways that could threaten Visa’s dominance.” It also charges or threatens exorbitant fees to companies that won’t play its game.
This sounds a lot like Google paying browsers and mobile devices to become the exclusive default search engine, before those companies create their own. In fact, in one instance Visa is paying off the same company—Apple—that Google did. Last month, a federal judge ruled that Google’s practices violated the Sherman Act.
Just to head off possible reform in Congress to break its dominance, Visa and its allies have spent at least $80 million lobbying against a single bill, according to researchers at Accountable.US. It’s money well spent: The Credit Card Competition Act, by mandating more competition, would save consumers and businesses an estimated $15 billion a year. Interestingly, the lobbying coalition includes major banker organizations, reflecting Visa’s strategy of giving the banking industry a share of its monopoly profits. Sen. Dick Durbin (D-IL), long the champion of credit card reform, is considering another round of hearings.
The Justice Department complaint, running 70 pages, relies heavily on Visa’s own statements of corporate strategy. It reads like a business school case study of how a giant company takes advantage of its market power.
The antitrust laws exist because much of this brand of strategy comes at the expense of consumers, businesses, potential competitors, and innovation. When the history is written of the Biden administration (one hopes continued by a Harris administration), one of its landmark achievements will be the resurrection and innovative use of antitrust enforcement and its creative application to a new era of predatory capitalism.
