Let’s say you want to purchase a widget — “widget” here is just a placeholder for a good or a service of any kind – from a car to a lawyer’s consultation to a ticket on the Queen Mary. What are your choices among methods of payment? Off the top of my head, here are ten. One can:
- Pay cash
- Pay by check
- Pay with a money order or draft obtained from a bank
- Pay with a credit card
- Pay with a debit card
- Pay using Venmo
- Pay using PayPal
- Pay using CashApp
- Pay using Zelle
- Pay by negotiating a credit agreement (promise to pay certain amounts over a period of time).
I’ve probably forgotten other forms of payment, but you get the picture – you have many choices.
Not so, seems to hold the federal Justice Department. On September 24, it filed a civil antitrust suit against Visa. The lawsuit alleges that “Visa illegally maintains a monopoly over debit network markets by using its dominance to thwart the growth of its existing competitors and prevent others from developing new and innovative alternatives.”
Debit card payments constitute approximately 29% of all payments and, by the Justice Department’s own admission, Visa currently owns a 60% market share for debit payments. That means that Visa debit payments constitute approximately 17% of all payments. How is Visa “monopolizing” the relevant market, which must logically be the market for payment, when almost 83% of payments do not involve Visa debit cards? When is anyone ever forced to use a Visa debit card?
By federal law, merchants must accept cash money as legal tender, right? For the life of me I cannot understand why the market Visa is accused of “monopolizing” should be narrowed down to the market for debit cards (of which 40% does not belong to Visa in any case!).
That’s my first grievance against this suit: the DOJ has defined the market Visa is accused of monopolizing in an incorrect way.
Indeed, the market for payments is not closed (as it would be if a monopolist was constantly pushing competitors out). Newcomers have not been forced out by a Visa monopolist. These newcomers include:
- PayPal, which is the oldest of the transfer programs. For over 25 years, PayPal has made it safe and easy to send money online. Whether you want to split a bill with friends or purchase items from an online store, you can use PayPal to do it — without charging any fees if the transfer is among non-merchants. PayPal allows the transferor to hide her credit or debit card number and thus contributes to security if the merchant is “sketchy” in any way. Originally the payment provider to eBay, PayPal has expanded its services into an almost bank-like space, offering things like loans and business products and its own debit card, under the MasterCard logo, that competes directly with Visa .
- Venmo is a mobile payment “app” that allows users to transfer funds to others and is similar to a social network where users can view other users’ transactions. Venmo is less oriented to merchants than PayPal and more oriented to transfers among friends and acquaintances. Again, credit or debit card information is kept confidential. In 2023, Venmo processed $276 billion in total payment volume, which was a 13.1% increase from the previous year. In the first quarter of 2024, Venmo’s total payment volume was $69 billion, which was an 8% increase from the previous year. Venmo was acquired by PayPal in 2013 (yet DOJ doesn’t seem to find that acquisition to have been monopolistic).
- Zelle, which launched in 2017, stands out from its competitors in a few ways. It’s owned and operated by Early Warning Services, LLC, which is co-owned by seven large big banks and is not publicly traded. One limitation of PayPal, Venmo and Block’s Cash App is that users must all be using the same service. Zelle’s appeal is that anyone with a bank account at a participating financial institution can send money to another registered user’s bank account (within the United States) using a mobile device or the website of a participating banking institution. By comparison, Venmo requires that users create a Venmo account.] There is no fee or charge on the transaction. As of 2022, 80% of the US population could connect to Zelle through their banking apps as over 1,600 financial institutions had signed on.
All this should be enough to defend Visa (with which I have absolutely no legal or financial connection, by the way). Technically, there’s a bit more, though.
Section 920 of the Electronic Fund Transfer Act (EFTA) was added by Section 1075 (the “Durbin Amendment” of the Dodd-Frank Wall Street Reform and Consumer Protection Act). It directs the Federal Reserve to establish standards for assessing whether the amount of any debit card or credit card interchange fee is “reasonable and proportional to the cost incurred by the issuer.” Section 920 also directs the Federal Reserve to restricting the number of payment card networks over which an electronic debit transaction may be processed to one network. In other words, Visa could never force merchants not to use competing debit cards. It is very hard to assert that any company has a monopoly of the market under such conditions.
The suit against Visa debit cards is weak, and is one of several examples of antitrust overreach of the Biden administration. Ms. Lina Khan, the Chair of the Federal Trade Commission, and Mr. Jonathan Kanter, Antitrust Chair at the Department of Justice (the two agencies share antitrust authority) have adopted a very liberal notion of “monopoly” that is hard to square with the letter of the law. Targeted corporations have been challenging these suits, and it will be most interesting to see how the Supreme Court eventually disposes of them.
