Visa Takes a Hit from the U.S. Department of Justice… I’m Fine, It’s Fine

Every morning on our way to work, or after lunch when we buy a coffee at a café near the office, we swipe or tap a card. In the brief moment when we pull a card from our wallet and wave it past the payment terminal, we’re stepping into the deep, complex world of finance. But for us, that entire process is just another everyday routine that ends with a simple beep.

Behind this simple payment process lies a web of companies, banks, and networks. At the center of it all is Visa. Visa is a card network used by hundreds of millions of people around the world, and its scale and influence are enormous. As of 2024, Visa accounts for 61% of the U.S. debit market. That’s more than double MasterCard, its main rival in cross-border payments.

Recently, however, cracks have begun to appear in this financial empire. On the 24th local time, the U.S. Department of Justice filed an antitrust lawsuit against Visa. After the news broke, Visa’s share price fell 5.49% that day. What exactly is going on?

Visa does not issue cards directly. Instead, it partners with countless banks around the world and encourages them to issue cards that run on the Visa network. Through contracts with Visa, banks issue cards bearing the Visa logo, allowing customers to pay conveniently almost anywhere.

You’ve seen cards with the Visa logo on the front, right? In this setup, Visa is called the “front-side network.” As shown in the image, there is also something called a “back-side network.” Were you aware of that? Many people aren’t—and that’s understandable. In theory, you can route debit card transactions over the back-side network, but in practice that often isn’t possible. The network printed on the back of the card can only be used if the issuing bank activates it.

This is where Visa’s influence shows. Under their contracts with Visa, banks face restrictions on adding other payment networks to their cards. Visa offers banks incentives to prioritize its own network. Because those incentives are tied to higher fee revenue, banks naturally gravitate toward Visa.

In this way, Visa cements its position as the front-side network, while the back-side networks become something consumers barely even notice. Using this model, Visa earns more than 7 billion dollars a year in fees from U.S. debit transactions alone.

This is one of the main issues at the heart of the antitrust lawsuit. Critics argue that this kind of relationship between Visa and the banks restricts competition and narrows the range of choices available to consumers.

Beyond its relationships with banks, Visa has deployed a range of complex strategies to preserve its dominant position in the market. One of these is using contracts with merchants to restrict them from using other payment networks. Visa charges merchants high fees while at the same time steering them to process payments through the Visa network.

Pause for a moment: what does it mean to "charge high fees even when they’re not using" the network? To understand this, you need to look at the "cliff pricing" structure Visa applies to merchants and acquiring banks. Under cliff pricing, merchants or acquirers must process more than a certain transaction volume through the Visa network in order to qualify for lower fees. In other words, if they fail to hit Visa’s volume targets on its network, the fees on transactions routed through Visa go up as a kind of penalty.

Because of this structure, once a retailer signs a contract with Visa, it is effectively forced to prioritize payments made with Visa cards. That becomes a major obstacle for merchants considering adopting alternative payment methods.

Visa also uses its own rules to restrict merchants from steering customers toward particular payment methods or offering discounts for using them. This, in turn, discourages consumers from choosing other ways to pay.

The Department of Justice argues that these practices by Visa severely undermine competition in the market, ultimately leading to higher costs and fewer choices for consumers.

In recent years, fintech companies have been reshaping financial markets with innovative technologies. Apple Pay, PayPal, Square and others are offering consumers new ways to pay through mobile payments and digital wallets. These shifts pose a major challenge to traditional payment networks like Visa.

Visa worried that these fintech players might build their own payment networks and ultimately replace Visa. Take Apple, for example: with its own digital wallet, Apple Pay, it has the potential to connect consumers and merchants directly. That could cut Visa out of the middle and enable end-to-end transactions without it.

So Visa chose to partner with fintech firms while at the same time writing contract terms that prevent them from developing services that could replace Visa. Visa dangled massive incentives to keep fintech companies using the Visa network.

Put bluntly, Visa was essentially paying Apple under the table to make sure Apple Pay didn’t steal its lunch.

But this kind of strategy doesn’t just restrict competition in the market; it can also stifle fintech innovation itself.

These three elements are why the Department of Justice has brought a lawsuit against Visa. Do you agree that Visa has gone too far?

Investors should closely examine how this lawsuit might affect Visa’s financial condition and long-term growth prospects.

First, antitrust lawsuits generally take a long time, and it is rare for the outcome to fundamentally change a company’s business model. In this case as well, it is expected to end with some form of settlement.

Reference: What Is Antitrust Law? Understanding Its Significance Through Real-World Cases

That settlement will likely involve issues related to merchants and the size of the fine. Visa and Mastercard have previously faced antitrust lawsuits. In 2003, the two were sued for forcing merchants to accept credit and debit cards as a tied bundle, and at the time Visa paid more than $2 billion in damages, while Mastercard was fined more than $1 billion.

Considering 1) that Mastercard has also established itself as a major front-of-card network, and 2) that contracts between Visa and fintech companies are, strictly speaking, “mutually beneficial commercial relationships,” which makes it ambiguous for the DOJ to intervene, the most straightforward point of agreement will likely once again be the “punitive fees aggressively imposed on merchants.”
Following such a settlement, Visa may also have to pay a fine. This could pose a short-term financial burden, but given Visa’s massive scale, it is unlikely to be fatal.

So the key question for Visa is this:

What matters is how Visa manages this crisis and prepares for the future. If Visa responds proactively to change and seeks out new business models, this could translate into long-term growth. It will be important to continuously monitor Visa’s strategic response and the market’s reaction. If Visa can maintain its dominance while also achieving the kind of flexibility we see in Mastercard, it could become an exceptionally attractive company.

Tomorrow, we will still use our cards to buy a cup of coffee.

But now we know this: behind every card payment lies a complex world of finance. And that world is slowly but surely changing.

All of us are living through this era of change. As technology advances and regulations evolve, companies must find new paths forward. And in the process, all of us stand to benefit from better financial services.

Visa’s story is not just about a single company; it is sparking an important conversation about our society’s overall financial system and market competition. We should pay close attention to how the financial markets evolve from here, and what choices we will make within that landscape.

You can read the Department of Justice’s complaint against Visa here.