Visa shares drop on report DoJ will sue over debit card market monopoly

Visa (NYSE:V) shares are down 2% premarket Tuesday following reports that the U.S. Department of Justice (DoJ) plans to sue the company for allegedly monopolizing the U.S. debit card market.

According to a report from Bloomberg, the DoJ is preparing to file an antitrust lawsuit accusing Visa of engaging in anticompetitive conduct to maintain its dominance, including exclusive agreements that hinder rivals and prevent technology companies from entering the market.

The lawsuit is said to be the culmination of a years-long investigation that began after Visa’s failed attempt to acquire fintech company Plaid Inc. in 2021.

Over the course of the inquiry, the DoJ has reportedly scrutinized Visa’s pricing structure and its use of “tokenization” technology, which secures card payment data. The case is expected to be filed in federal court as early as Tuesday.

According to Citi analysts in a note reacting to the news, the development is not entirely unexpected, as the investigation has been ongoing since 2021.

While Visa may have a reasonable defense, pointing to increasing market competitiveness and rival Mastercard’s wins in the debit space, Citi warns that the lawsuit could create “incremental regulatory overhang” for Visa.

The firm has now shifted its network preference to MasterCard (MA) due to the uncertainty surrounding the case.

Analysts highlight that the case might center on Visa’s use of volume-based discounts, which allegedly discourage merchants from directing debit transactions to alternative networks.

They note that this is a complex, regulated market, making litigation more challenging. While the Durbin Amendment already caps merchant fees for processing debit cards, the new lawsuit could result in financial penalties or restrictions on Visa’s ability to offer certain pricing schemes.

“It is difficult to assess the penalties that Visa could face until we see the complaint. Yet, it is likely a combination of financial and conduct restrictions that would limit its ability to offer volume-based or other pricing regimes that could discourage merchants from routing debit transaction over alternative networks,” conclude the analysts.