The drop in Visa shares on Friday was the biggest one-day drop in a year. The US Department of Justice has launched an investigation against Visa to determine whether the company is restricting merchants’ ability to choose a payment network and whether there are anti-competitive practices.
Visa (V) shares plunged 6.24% on Friday following a Justice Department investigation into the use of Visa’s debit cards.
Visa is the world’s largest payment network that does not charge card users, but requires merchants to pay for using the network. These “network fees” are the main source of income for Visa and other payment systems.
Visa and Mastercard (MA) are the two world leaders in this industry today, but the number of fintechs has grown in recent years. companies and startups that can offer sellers lower network commissions.
The COVID-19 pandemic has accelerated the spread of digital payments and significantly increased the share of online transactions. Many sellers have long complained about the high cost of network fees as they can be 2% or more of each transaction.
The US Department of Justice is investigating Visa’s practices for allegedly limiting merchants’ ability to route debit card transactions over less expensive networks.
The problem, the department said, is that Visa has created new technology that makes it difficult to route online transactions over alternative networks.
Visa on Friday officially announced: “The US Department of Justice has informed Visa of its plans to initiate an investigation into Visa debit practices in the US. We believe Visa’s US debit practice is in compliance with applicable law. ”
The 2010 Dodd-Frank Act, as amended by Durbin, requires “merchants to be able to choose from at least two independent debit card networks to route a transaction.”
As a rule, these are Visa and Mastercard.
If Visa’s requirements for sellers limit this right of sellers, then the company is guilty of breaking the law.
Over the past two years, US and EU regulators have tightened antitrust controls over dominant technology and fintech companies.
So, last year a deal between Visa and fintech startup Plaid for $ 5.3 billion was blocked in court. The Justice Department then said that by merging, the companies would further limit competition in the online debit card transactions market, and also pointed out that the Visa network accounts for approximately 70% of such transactions in the United States. Visa and Plaid ultimately pulled out of the deal.
Market analysts indicate that the investigation may put pressure on Visa shares in the short term. However, such investigations can drag on for more than a year, and penalties, as a rule, do not have a significant impact on such giant companies.
For the 2020 financial year, Visa received net income of $ 11.2 billion.
Over the past 12 months, Visa shares are up nearly 36%.