Key Points
- Visa shares dropped 2% in premarket trading. The U.S. Department of Justice is preparing to file an antitrust lawsuit against Visa for monopolizing.
- The lawsuit follows a long investigation after Visa’s failed acquisition of fintech company Plaid in 2021.
- Citi analysts warn that the lawsuit could result in regulatory uncertainty for Visa and have shifted their preference to Mastercard.
- Potential penalties could include financial fines and limitations on Visa’s pricing schemes, such as volume-based discounts.
Visa Inc. (NYSE: V) shares dropped 2% in premarket trading Tuesday following reports that the U.S. Department of Justice (DoJ) is preparing to file an antitrust lawsuit against the company. The lawsuit alleges that Visa has been monopolizing the U.S. debit card market through anticompetitive practices, including exclusive agreements that stifle competition and prevent technology companies from entering the market.
According to Bloomberg, the lawsuit is expected to be filed in federal court as early as Tuesday, marking the culmination of a years-long investigation. The inquiry began after Visa’s failed acquisition attempt of fintech company Plaid Inc. in 2021.
During the investigation, the DoJ scrutinized Visa’s pricing structure and its use of “tokenization” technology, which secures card payment data. The DoJ claims that Visa’s actions have maintained its dominance in the debit card sector, potentially violating antitrust laws.
Citi analysts, responding to the news, noted that this development is not entirely unexpected given the ongoing nature of the investigation since 2021. Despite the uncertainty surrounding the case, Visa may mount a reasonable defense by highlighting the growing competitiveness in the market and rivaling Mastercard’s success in the debit card space. However, Citi has shifted its preference to Mastercard (MA), warning that the lawsuit could result in “incremental regulatory overhang” for Visa.
One key issue in the lawsuit might be Visa’s use of volume-based discounts. These discounts allegedly dissuade merchants from directing debit transactions to alternative networks, favoring Visa’s system. While the Durbin Amendment already regulates merchant fees for processing debit cards, the new legal case could impose additional penalties or limitations on Visa’s pricing strategies.
Analysts noted that while it is difficult to predict the penalties until the full details of the complaint are known, Visa could face financial penalties and restrictions on its ability to offer certain pricing regimes. Such restrictions might include limiting volume-based discounts that discourage merchants from using alternative debit networks. The complexity of the regulated debit card market is expected to make litigation challenging, but the lawsuit signals increased regulatory scrutiny of Visa’s business practices.
