The Feds Are Looking at Visa’s Debit Practices. The Stock Is Falling Hard.

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Shares of Visa were down 5.2% in recent trading.

Simon Dawson/Bloomberg


is under investigation for anticompetitive practices in its debit business, according to a report in The Wall Street Journal. The stock is down more than 5% on Friday, and it’s taking shares of


down with it.

The Justice Department is investigating whether Visa (ticker: V), the largest U.S. card network, has prevented merchants from routing debit transactions over lower-cost networks, according to the Journal. The DOJ may be probing whether Visa is using anticompetitive practices to maintain market share in debt, particularly for online transactions.

A spokesperson for Visa declined to comment.

Shares of Visa, a component of the

Dow Jones Industrial Average,

were down 5.2%, at $209.20, in recent trading. Mastercard (MA) was down 2.4%, at $358.23. The DOJ may also be investigating Mastercard over similar practices, the Journal reported, though Mastercard’s debit business is smaller. “We have no reason to believe Mastercard is part of this DOJ investigation,” a company spokesperson said in an email to Barron’s.

Visa tried to expand its presence in online debit by acquiring fintech start-up Plaid, but the DOJ sued in November to block the deal, prompting Visa to back down.

The DOJ said at the time that Visa had a 70% market share in debit, noting that Visa processed 43 billion debit transactions in the U.S. in 2019, including 10 billion online. Banks have issued 500 million Visa-branded debit cards, the DOJ said.

Visa and its partner banks, which issue the cards, charges two types of fees: A network fee paid by merchants to Visa, and an “interchange” fee that merchants pay to banks. Those fees cost consumers $6 billion a year industrywide, the DOJ said in its complaint.

Interchange fees have been capped by a federal law since 2010, but network fees are still open game and they are highly profitable. Visa earns an 88% operating margin on network debit fees, typically charging merchants 22 cents per transaction, plus a percentage of the purchase price.

One way that Visa keeps merchants on its network is by preventing merchants from running transactions through competing PIN networks, according to the DOJ’s complaint in the Plaid case. PIN networks like Accel, Star, NYSE, and Pulse have gained traction for in-person transactions, but merchants rarely use PIN networks for online transactions because Visa essentially shuts them out through technology barriers and restrictive contracts, the DOJ alleged. 

Visa and Mastercard said this week that they would postpone some fee increases on merchants until April 2022, following pressure from Congressional Democrats to delay the fee hikes. 

Part of the challenge for Visa and Mastercard is that online and peer-to-peer transactions may be cutting them out of the payments loop. New “pay by bank” services for online transactions can bypass the card networks, sending a transaction directly from a consumer’s bank account to a merchant. P2P services like

PayPal Holdings

‘s (PYPL) Venmo may also bypass the card networks, depending on the type of transaction.

Write to Daren Fonda at [email protected]

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