The Durbin Amendment, part of the Dodd-Frank Act, was supposed to promote competition by capping interchange fees for payment networks like Visa, mandating merchant choice in processing networks for large issuers. However, the Act’s legacy has been a poor one for consumers.
Nothing about capping fees changes the cost of producing a given service. It simply reduces the revenue stream from that service and redistributes it to counterparties. Research by the Richmond Federal Reserve indicates that those counterparties – retailers – largely pocketed the difference and did not pass along savings to consumers. Worse, debit interchange price controls were estimated to have increased the unbanked population by about 1 million.
The Department of Justice recently filed a complaint in the Southern District of New York against Visa, alleging monopolistic behavior in debit card network services. This is the latest in a long series of federal interventions in this market. Indeed, the lawsuit says more about federal interventions than Visa’s business practices. As the DOJ embarks on another antibusiness adventure, it again neglects the role consumers play in choosing their preferred networks. While the incoming Trump Administration will no doubt reassess how federal agencies approach antitrust policy and enforcement, it is unclear if it will reverse course in this case.
At the core of the debit market is payment infrastructure. These four-party networks connect banks, merchants, acquirers, and issuers, making broad, secure, payment acceptance possible for consumers. Visa doesn’t profit directly from interchange fees. Instead, issuing banks collect these fees, often reinvesting them into consumer rewards, which in turn increases consumer demand for card-based payments. Visa’s income comes from network fees, a small portion of merchant processing costs.
The federal complaint claims that Visa secures its market dominance through anti-competitive tactics, such as offering volume discounts to banks and paying competitors like Apple to keep services like Apple Pay compatible with its network. According to the suit, these practices stunt innovation and limit competition from alternative networks. It is noteworthy that DOJ excludes automated clearing house (ACH) payments in its definition of the relevant market, arguably overstating Visa’s market share.
An alternative viewpoint on Visa’s payments to other parties would recognize this as incentivizing partners to invest in the network, ensuring payments flow smoothly, securely, and reliably—a costly yet essential task. By securing high-volume commitments, Visa maintains the scale needed to prevent fraud and keep transactions efficient for both merchants and consumers.
This practice has hardly stifled innovation. The past decade has seen an explosion of payments innovation in the U.S., much of it enabled by novel products or “FinTech’s” leveraging Visa’s infrastructure to build transformative businesses. From PayPal and Square to Chime and SoFi, these companies have succeeded by using Visa’s system as a foundation for their products and services. Even with the option to route transactions through alternatives, merchants often choose Visa due to reliability and security. Competing networks offering lower fees may fall short on fraud protection and transaction acceptance, leading merchants to stick with Visa’s established network.
Visa’s network also animates consumer behavior. Consumers trust Visa for reliable transactions. Previous attempts to establish alternative networks, such as Walmart Pay, struggled not because of Visa’s dominance, but because consumers hesitated to adopt a new and unfamiliar system. In payments, consumer trust is hard-won and not easily transferred to untested alternatives.
That observation does not sit well with more activist policymakers, which have been disrupting the debit card market for years. Typical of many progressive policies, the price control regime pretended to ring-fence smaller banks from these effects. But predictably, legislating away market forces failed here again, as about half of surveyed small banks were ultimately impacted by the price controls. Where some debit cards once offered rewards programs, those have now essentially vanished. According to an estimate by University of Chicago researchers, consumers lost more than they gained, with an estimated loss of $22-25 billion in consumer benefits.
Like past interventions, the DOJ’s case against Visa is less about consumer harm and more about competitors’ frustrations with Visa’s effectiveness in maintaining its network and delivering value to consumers. True competition in the payments industry should be driven by offering new value, not by tearing down the structures that make widespread payment acceptance possible. The challenge of building secure, reliable payment networks that work at scale is enormous. Visa’s infrastructure has made it easier for innovators to reach consumers and merchants alike. For regulators, promoting genuine competition means recognizing these dynamics and the role consumer preference plays in determining how Americans pay.
While a change in administration may offer an opportunity for course correction, that is far from assured. A more lasting solution would be for the courts to dismiss yet another misguided exercise in federal activism.
