Shaken to the Core: How the World’s Largest Credit Card Company’s Monopoly Led to Its Stunning US Shutdown
US Department of Justice Investigates Visa for Antitrust Concerns
Visa’s Alleged Monopolistic Practices
- Blocking other payment systems at the source
- Maintaining a monopoly and setting high fees
- Preventing fintech companies from entering the market
Visa’s alleged monopolistic practices have been a concern for the US Department of Justice, which has filed an antitrust lawsuit against the company.
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Visa card [Photo = Yonhap News]
After four years of preparation, the US Department of Justice has filed an antitrust lawsuit against Visa, the world’s largest financial payment company. The Justice Department alleges that Visa maintained its ‘monopoly position’ in the debit payment market by using various methods.
Visa designed its fee structure to virtually prevent the use of other payment systems and gave large discounts to merchants who used its system extensively. Even if competitors offer lower fees, Visa created a structure where it is more profitable for merchants to use Visa only.
The problem is that Visa engages in excessive ‘commission business’ within this anti-monopoly ecosystem. Attorney General Merrick Garland claimed, “Visa illegally amassed market power and collected fees far in excess of the level that could be charged in a competitive market.”
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According to the complaint filed in federal court in Manhattan, New York, Visa used various methods to maintain its monopoly position. They partnered with fintech companies that have rapidly emerged in recent years and used a tactic to get them to abandon their services by providing huge incentives.
A representative example is Apple, which Visa considered a strong competitor. The complaint also states that Visa entered into a secret agreement not to develop payment technology that could compete with its own, but instead to share the profits of Visa’s “enormous” monopoly with Apple.
It also includes the fact that after signing the first contract with Square, an American mobile payment solution developer, in 2014, a Visa employee said, “Square was locked down.” Visa previously tried to acquire Plaid, a payment support platform startup that promoted a ‘cardless payment system’, for $5.3 billion (about 7 trillion won) in early 2020, but abandoned the acquisition after the Ministry of Justice put the brakes on it.
According to the complaint, a former high-ranking official at Visa said, “There are no competitors (to Visa), everyone is either a colleague or a partner,” and added, “The only problem is how to do them thought it would be beneficial to partner with us.”
The Ministry of Justice believes that Visa has been committing such illegal acts since the beginning of 2010. In fact, with the introduction of the Dot-Frank Act in 2012 and the rise of fintech companies such as PayPal and Apple Pay, Visa’s monopoly in the market was shaken.
Doha Meki, a prosecutor in the Ministry of Justice’s antitrust division, said, “Visa was an invisible but inescapable financial network,” and noted, “However, in the early 2010s, two events occurred that threatened Visa’s dominance in the market.”
Visa strongly objected to the lawsuit. Regarding this lawsuit, Visa said, “Companies offering new payment methods for products and services are constantly emerging,” and “The Justice Department’s complaint ignores the reality that only one of many of competitors in the debit card payment market is Visa.”
US antitrust authorities have previously investigated Visa’s competitor, Mastercard, for its antitrust activities in the debit card market. The US Federal Trade Commission (FTC), which began a related investigation in 2022, pointed out that Mastercard was illegally forcing merchants to use its debit card-only payment system.
The FTC said, at the time, when Mastercard was doing e-commerce transactions, merchants were using Mastercard debit cards to transfer information to electronic wallets and then blocking them from using other payment networks. Then, in May of last year, the FTC ordered Mastercard to share the information needed to process debit card payment details with other payment networks.
There is interest in whether this will lead to a reduction in fees as the monopolistic practices of the card payment market, which is split between Visa and Mastercard, are put on hold one after another.
After a lengthy lawsuit with merchants in the United States, Visa and Mastercard agreed in March this year to allow merchants to encourage customers to use low-fee cards. They also agreed to a reduction in fees that would save franchisees in the United States about $30 billion (about 40 trillion won) over the next five years, but a federal court blocked it last June.