Restaurants and retailers have a potent new ally in their battle to bring down charge-card processing fees: The U.S. Department of Justice.
The agency announced this week that it is suing Visa, a major target of the industry’s effort, for allegedly stifling competition in illegal ways. The suit does not target high swipe fees per se, and is focused on debit cards, not all credit transactions. But the crux of the industry’s drive to bring down the charges is fostering competition for the card company and thereby opening the door to lower-cost alternative processors.
Justice alleges that Visa has prevented it from happening in part by tying merchants and banks that issue Visa-brand debit cards to exclusionary deals. The arrangements penalize the parties if they use an alternative process, the suit asserts.
In addition, Justice says, Visa “induces would-be competitors to become partners instead of entering the market as competitors by offering generous monetary incentives and threatening punitive additional fees.” According to the department, upstarts are afraid to position themselves as a rival to the card giant because they’ll never get traction; Visa has a grip on 60% of the debit-charge processing market.
Visa’s dominance has been known for years, if not decades. The Justice suit breaks new ground in suggesting the methods for preserving that market lead are illegal under federal anti-trust regulations.
“This is further evidence that Visa has regularly blocked competition in the debit card market,” said Doug Kantor, general counsel for the National Association of Convenience Stores and a leader of a cross-industry advocacy group called the Merchant Payments Coalition. The National Restaurant Association is a member of the coalition.
“While this case is focused on debit cards, it shows how we desperately need competition over credit card swipe fees, which currently face no competition at all,” Kantor continued in his statement.
Visa had yet to respond to a request for reaction as of press time. But a coalition opposed to merchants’ legislative effort to jumpstart competition in card processing, a federal bill called the Credit Card Competition Act, issued a statement on the day after the Justice suit was filed. It asserted the Act would essentially kill frequent-flyer programs and other affinity rewards set-ups because those models couldn’t function across multiple charge-card processors.
The group, the Small Business Payments Alliance, also contended that the benefits for big retailers would be far greater than the payoff for small operations because of scale, tipping competition further in favor of the giants.
The National Restaurant Association has ranked a reduction of swipe fees as one of its top priorities. It notes that U.S. restaurants typically pay more than double what their counterparts elsewhere are charged for having credit-card charges processed. In addition, the group contends there’s little transparency about how a specific restaurant’s swipe fees are calculated; the charges vary widely from restaurant to restaurant and from month to month.
According to Justice, Visa annually processes $12.3 trillion in card transactions worldwide.
The department’s lawsuit was filed in the U.S. District Court for the Southern District of New York.
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