NEW YORK—S&P Global Ratings said the U.S. Department of Justice's (DOJ) debit card civil antitrust suit against Visa Inc. adds to the company's considerable regulatory and legal risks.
“However, we think Visa's business diversity and strong financial position provide protections should the case, which could take years to resolve, result in an unfavorable ruling,” S&P Global said.
On Sept. 24, 2024, the DOJ sued Visa alleging that it illegally maintains a monopoly over debit card networks in the U.S., violating antitrust laws.
“The DOJ believes that with 60% market share, Visa unlawfully amassed the power to extract fees that exceed what it could charge in a competitive market,” S&P Global explained. “The DOJ said Visa's agreements with merchants and banks penalize its customers who route transactions to a different debit card network or alternative payment system.”
It also induces potential competitors "to become partners instead of entering the market as competitors by offering generous monetary incentives and threatening punitive additional fees," according to the DOJ, S&P Global said.
The DOJ has asked the court to stop Visa from engaging in what it views as anticompetitive practices.
Visa has publicly called the DOJ suit meritless and said it will defend itself in court, noting that its clients choose Visa for its secure and reliable network, fraud protection, and other value that it provides, S&P Global said.
“If the DOJ is successful in the lawsuit, we are uncertain how changes in those practices would affect its debit card revenue in the U.S. While reduced fees conceivably could affect its profitability, Visa's diversification and global growth should support its revenues,” S&P Global said. “We estimate that Visa generates 10%-15% of its total net revenue from debit cards in the U.S., the largest country of its global operations. The company also operates with very robust EBITDA margins, typically near 70%, and is benefiting from electronic payments continuing to grow globally.”
Debit Card market Share
S&P Global added that Visa also benefits from high debit card market share in many other countries in the world—including U.K., Ireland, or Australia—where it operates, despite lower regulatory caps on fees it can charge, S&P Global said.
“Conversely, in other economies, Mastercard or the local/national schemes dominate the debit card payments space,” S&P Global noted.
“In our view, the DOJ lawsuit reflects the regulatory and legal risks Visa has had for years and allegations that have resulted from its high market share in card payments in many markets,” S&P Global concluded. “Visa and Mastercard have been working for nearly two decades to resolve legal challenges pertaining to interchange fees in the U.S. and its business practices. As part of that, Visa and Mastercard reached an agreement in March 2024 to change certain business practices, lower credit card interchange fee rates, cap those rates for at least five years, and provide merchants more flexibility in surcharging. However, the court rejected this settlement in June 2024, deeming it insufficient, among other things.”
S&P Global said it expects litigation costs to remain elevated in the coming years because of the DOJ lawsuit, the interchange matter, and other cases.
“Visa's new litigation provisions accounted for about 5% of total operating expenses in the nine months ended June 30, 2024, and 8% in fiscal 2023, which we consider substantial but manageable given the company's strong profitability,” S&P Global said.