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One of the most consequential elements of the DoJ’s case against payments giant Visa could be its effect on the ongoing credit card swipe fee discussion in the US, a long-lasting and bitter feud over the fees that merchants pay to process card transactions.
For several years, merchants have been pushing lawmakers to introduce regulatory measures to police fees, which can range from 2-3 percent of every transaction.
Currently the fee rates are set by credit companies, a market dominated by Visa and Mastercard, in what is essentially a self-regulated market.
The DoJ’s September lawsuit could provide the momentum needed to advance the Credit Card Competition Act (CCCA), which has been proposed to Congress but is yet to advance.
The Act aims to encourage greater competition in the payments space by allowing merchants to route transactions through alternative networks. Although focusing on the debit section of the payments space, the lawsuit highlights Visa’s dominant position and supposed anti-competitive practices.
Industry experts believe that if the legislation gains traction, the scrutiny could encourage US lawmakers to favour reform, resulting in a more competitive landscape that benefits both businesses and consumers through reduced transaction costs.
According to Doug Kantor, general counsel at the National Association of Convenience Stores, the case could add “rocket fuel” to the debate.
“The CCCA has some momentum and support, but when you show people in such a stark way the bad behaviour that has led to this situation, it's much harder for anyone to deny that some serious changes need to be made. It should provide a lot of additional momentum,” he told Vixio.
The ongoing legal battle is also likely to encourage broader executive branch support, with the FTC and the Federal Reserve — who are responsible for enforcing regulation II, the ruleset that governs debit card interchange fees — more likely to take notice as a result, said Kantor.
Card parallels
There are a lot of similarities in the issues outlined in the DoJ complaint to the practice of Visa and Mastercard in the credit card arena.
Critics argue that Visa has the power and authority to stifle competition and innovation while ensuring that other would-be competitors stay out of the market in both the debit and credit card sectors.
“If they feel like they have the discretion to do this in a regulated debit space, then you can only imagine what they are doing in the credit space, which is unregulated,” said one attorney, who spoke to Vixio on condition of anonymity.
“This is why we need the CCCA, to make sure there are other options in a space that is dominated by two players.”
The attorney agreed that the DoJ’s debit case against Visa adds more wind to the sails of scrutiny on the entire US payments system.
Although there is increased momentum, it is unclear if there will be an attempt to push the CCCA through Congress before a new administration takes office in January.
As Vixio wrote following the DoJ's announcement, Visa responded to claims by arguing it “ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving”.
“When businesses and consumers choose Visa, it is because of our secure and reliable network, world-class fraud protection, and the value we provide,” said Julie Rottenberg, Visa’s general counsel, in a statement to the media.
Opportunities for fintech
The DoJ’s case also represents a potential turning point for fintech firms such as Square, PayPal and Apple Pay that have long tried to disrupt traditional card networks.
The lawsuit could provide additional space for alternative payment methods that bypass Visa and MasterCard altogether like direct bank transfers or peer-to-peer payment services.
If successful, proponents argue that these fintech innovations could lower transaction fees for businesses, providing consumers with cheaper and more efficient payment options.
