The news that the U.S. Department of Justice is probing debit card routing practices at Visa Inc. follows on a long history of such investigations and could portend a more serious attitude by regulators to address longstanding merchant complaints about network routing and pricing. “This is one more heavy step in a growing footbeat of increased regulatory scrutiny in the card payment business,” says Steve Mott, principal at BetterBuyDesign, a Stamford, Conn.-based payments consultancy, in an email message.
The latest inquiry also comes as merchants, issuers, and networks are contending with the impact of a year-long pandemic that has restricted in-person shopping, driven many consumers for the first time to depend on e-commerce, and increased the urgency of such moves as contactless transactions and increased fraud scrutiny.
According to news reports Friday, the DoJ is looking into longstanding merchant complaints that Visa is frustrating the debit-routing choice merchants were given under the Durbin Amendment to the Dodd-Frank Act. The decade-old amendment capped debit card interchange for larger issuers and mandated a choice of at least two unrelated networks for merchants. The latest investigation is looking at whether Visa’s network policies are giving the network an illegal boost in market share, according to the report by The Wall Street Journal.
A DoJ spokesperson declined comment. A Visa spokesperson says by email the DoJ notified the company about “plans to open an investigation into Visa’s U.S. debit practices.”
“While Visa has not yet received a Civil Investigative Demand, we have received a notice to preserve relevant documents related to the investigation,” the spokesperson says. “We believe Visa’s U.S. debit practices are in compliance with applicable laws. Visa is cooperating with the Department of Justice.”
The latest inquiry follows a Federal Trade Commission investigation into debit network routing practices at Visa. The network confirmed that probe in November 2019 as part of a filing with the Securities & Exchange Commission. The FTC investigation reportedly is focused on whether Visa is blocking merchants from sending mobile-wallet and contactless transactions to other networks. Both forms of card transaction have taken on more volume as a result of the pandemic.
In 2016, Visa said it had modified policies that routed EMV chip card transactions to Visa rather than to networks chosen by merchants, some of which had sued the network over the matter. Visa disclosed at the same time that the FTC was looking into the matter. At the time, chip cards were relatively new in the U.S. market, with the EMV standard having taken effect the prior year.
Observers see the latest investigations as following much the same blueprint as previous probes. “I’m impressed to see how quickly the DoJ joined the FTC effort to investigate competitive issues in the U.S. debit card market,” says Mott. “Importantly, it appears that the inquiries are looking both at technical obstacles to effective deployment of merchant routing choice—especially for PIN and PINless debit—and business practices considered by many to be arbitrary and abusive of both merchant/acquirer choice.”
Mott cites certain network fee policies as also reinforcing transaction volumes. One example, he says, is Visa’s fixed-acquirer network fee, or FANF, which was introduced in 2012 and requires merchants to maintain specified volume levels or risk paying higher rates.
Other observers point to what they see as a settled strategy at the major card networks to function as value-added systems, rather merely as transaction switches. “Visa always acts to protect its position as the arbitrator of value between its network participants,” says Patricia Hewitt, principal at Savannah, Ga.-based PG Research & Advisory Services, in an email message. “It is for that reason that Visa fights so fiercely to ensure they control the end-to-end transaction. Think of it as gerrymandering for payments territory. It’s a strategy that has worked well for them but has always left them vulnerable to anticompetitive charges.”
But network defenders see network policies regarding routing and pricing as an outgrowth of an ongoing balancing act that maximizes benefits for a wide spectrum of parties. ”Card issuers and networks, through continual investment and innovation, have created tremendous value for both merchants and consumers and are constantly balancing the interests and costs for all parties in the payments ecosystem,” argues Jeff Tassey in an email message. Tassey is chairman of the Electronic Payments Coalition, a Washington. D.C.-based trade group for payments networks.