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ICYMI: “'Visa Wanted a Vast Empire. First, it had to beat back its foes.' – WSJ
On October 19th, the Wall Street Journal published an expose on how Visa used its market power to block competition in the credit card market. The findings are eye-opening and, along with the recent Department of Justice lawsuit against Visa, add to the growing evidence of the lack of a free market in the space.
The full story merits reading, but among other things, the Wall Street Journal found:
Visa Paid Off Competitors and Used Fees as Weapons Rather than Compete
- “[Visa] got here in part by paying for competition to go away and by using fees as weapons to make partners bend to its wishes.”
- “One by one—as e-commerce exploded and Americans moved away from using cash—Visa has come up with strategies to keep financial and tech companies, including JPMorgan Chase, Apple, PayPal Holdings, Square and others from encroaching on its turf. All the while, it has steadily raked in a cut of many transactions done in this country—an arrangement that merchants and lawmakers have criticized for years.”
Charged High Fees, Held Back Innovation
- “Each time a Visa card is used for a purchase, Visa takes a cut of the transaction—a so-called network fee that it pockets. Visa also sets a much larger “interchange” fee that merchants pay to the banks that issue credit cards.”
- “Visa’s actions, the [Justice Department] suit said, created higher fees for merchants that are passed on to consumers and set the U.S. payments system years behind the rest of the world.”
- The Justice Department lawsuit only focuses on debit cards, but “Visa’s approach wasn’t just for its debit-card operations; it also pushed to expand and protect its credit-card business, Wall Street Journal reporting shows.”
- “Visa’s board was discussing how PayPal’s model “was also suitable for enabling merchants of all types to provide simpler, faster card-based payments to their online consumers,” according to an excerpt from a 2016 Visa board document included in the merchants’ lawsuit court filings.”
“Mutually Assured Destruction” with Apple
- “’Visa’s strategy has been to align its incentives with Apple, which Visa refers to as a ‘mutually assured destruction principle,’” the DOJ said. That is the name of a military strategy aimed to deter nuclear escalation. Visa would continue to work with Apple as long as Apple didn’t become a competitor, the DOJ said.”
Strong-Armed PayPal
- “Visa threatened to impose higher charges on PayPal when consumers used Visa debit cards, the DOJ said. And it offered to lower the fees PayPal would incur when consumers loaded money onto the platform using Visa cards, according to people familiar with the matter.”
Undercut Chase
- “Visa offered to pay Costco $150 million. One condition of the deal: Costco would not do a credit-card deal with a bank that had its own network, according to the people familiar with the matter and the court filings. That shut out Chase.”
Put “Square on a short leash”
- “In a multiyear agreement in 2014, Visa gave Square a break on the fees for many purchases and Square agreed to give priority to sending Visa debit-card transactions through Visa instead of the other networks, according to the people and the merchants’ court documents. Visa also gave fee concessions when Visa debit cards were used on Square’s Cash App, and Visa reserved its right to cancel this arrangement, according to the DOJ lawsuit. After signing the contract, a Visa executive allegedly stated, ‘we’ve got Square on a short leash.’”
Attempted to Take Over Key Competitor Plaid
- “At one point, a Visa executive doodled a picture of Plaid as an island volcano, warning colleagues that ‘[w]hat lies beneath, though, is a massive opportunity—one that threatens Visa,’ according to a 2020 DOJ lawsuit.”
- Visa “struck a deal to acquire Plaid for $5.3 billion…The Justice Department in 2020 sued to block the deal on antitrust grounds and the companies walked away.”
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