Visa Shares Decline Following Report of DoJ Lawsuit on Debit Card Market Monopoly

Visa shares experienced a 2% decline in premarket trading on Tuesday following reports that the U.S. Department of Justice (DoJ) intends to initiate a lawsuit against the company for allegedly monopolizing the U.S. debit card market.

According to reports, the DoJ is preparing to file an antitrust lawsuit, accusing Visa of engaging in anti-competitive practices that maintain its market dominance. This includes entering into exclusive agreements that hinder competitors and block technology firms from breaking into the market.

This potential lawsuit is reportedly the result of a lengthy investigation that began after Visa’s unsuccessful attempt to acquire fintech firm Plaid Inc. in 2021. Throughout the inquiry, the DoJ has examined Visa’s pricing strategies and its implementation of “tokenization” technology, which secures card payment information. The lawsuit may be formally lodged in federal court as soon as Tuesday.

Analyzing the situation, analysts at Citi suggest that while the development is not entirely surprising given the ongoing investigation since 2021, Visa might have a solid defense due to increased competition in the market, especially with rival Mastercard making gains in the debit sector. However, Citi cautions that the lawsuit could introduce additional regulatory challenges for Visa.

As a result of the uncertainty surrounding this case, Citi has shifted its preference to Mastercard. Analysts point out that the lawsuit might focus on Visa’s use of volume-based discounts, which some believe discourage merchants from routing debit transactions to competing networks.

The analysts note that the complexity and regulation of this market make legal proceedings particularly challenging. Although the Durbin Amendment already limits merchant fees for processing debit card transactions, the new lawsuit could lead to financial penalties or restrictions on Visa’s pricing practices.

“It is difficult to determine the potential penalties for Visa until the complaint is made public. However, it is likely that any consequences could include a mix of financial and operational restrictions that limit Visa’s ability to maintain its current pricing strategies and discourage merchants from directing debit transactions to alternative networks,” the analysts concluded.