The Justice Department is reportedly exploring whether Visa’s debit card practices are anticompetitive, and merchants say an investigation is long overdue.
The primary focus of inquiries conducted by the agency’s antitrust division is whether Visa’s policies limit merchants’ ability to choose the lowest-cost approach to routing debit card transactions online, according to Friday reports in the The Wall Street Journal and Bloomberg News.
The DOJ is also looking into the in-store debit card policies of Visa, which has dominant share in U.S. credit cards, the Journal reported.
Visa and the DOJ would not provide comment for this story. The San Francisco-based company’s stock price fell more than 5% in the wake of the news.
The Merchants Payments Coalition, a Washington, D.C.-based trade group representing retailers that has lobbied for years to reform card network fees, said it welcomes any DOJ investigation.
“This is good news. The MPC has been concerned about these practices to limit debit routing for years and it’s great to see the DOJ looking into it,” said Craig Shearman, a spokesman for the MPC.
Debit card routing became a focus of scrutiny after the 2008 financial crisis, resulting in the adoption of the Durbin amendment within the Dodd-Frank Act, which guaranteed choices in routing debit card transactions.
The law requires that debit cards offer merchants a choice of two unaffiliated card network options—including one that isn’t Visa or Mastercard—so they can opt to route transactions on independent debit card networks that typically are cheaper.
But merchants say their debit-routing choices are not as clear for online transactions, which has become a bigger problem as e-commerce has surged when consumers were quarantined beginning last year.
The Durbin amendment wasn’t clear about how debit routing would be handled online, and in many cases, e-commerce merchants are forced to default to Visa or Mastercard to route transactions because other options aren’t always available, merchants say.
“Limits on debit routing have been an issue for both in-store and online transactions, but routing for online transactions is particularly important at a time when online shopping has accelerated so rapidly during the pandemic,” Shearman said.
In recent months, the government has increased its interest in credit card networks’ market power and business practices.
This week the card brands announced a one-year delay on a planned payment card interchange fee hike after Sen. Dick Durbin, D-Ill., intervened.
Four months ago, the DOJ sued to prevent Visa from buying data-aggregator Plaid, forcing it to call off the $5 billion deal. Two months ago, the DOJ opened an investigation into American Express’ business credit card sales practices.
Visa landing in the hot seat with the DOJ at this point isn’t surprising, according to Eric Grover, a principal with Intrepid Ventures.
“Visa is the largest payment network and there’s been a clamor from the merchant lobby, activists and politicians that it has been flouting or at least getting around the Durbin amendment’s debit-routing choice mandate,” Grover said.
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