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Visa are a payment services provider – they facilitate digital bank transfers. In reality, this is a pretty complicated concept.
Take a look at any bank card you own and you might notice that, as well as the name of the bank itself (for example Barclays, HSBC, etc), the Visa or Mastercard symbols are likely to appear somewhere on it. Visa is not a bank itself – instead, it provides financial institutions (like banks) with the technology and products which they can then offer to their consumers (e.g. someone opening a current account with the bank being issued a debit card).
Generally, the way in which Visa makes money is through taking a cut of the transactions being processed. If you go into a shop and pay using your Visa debit card at the checkout, while you might be paying £3, the shop might only receive £2.75 – as the ‘merchant’, they have to pay a transaction fee. This might help you understand why some shops have a minimum purchase price before you can use your card (or, before the practice became illegal in the UK, why some locations would attempt to charge you a lump sum for using your card in the first place).
This is also another reason why many places will not accept American Express – they are known for having higher transaction fees than other card payment providers. The amount paid on each transaction will vary bank-to-bank, and these deals are often negotiated on a case-by-case, bespoke basis when Visa are contacted by a bank and asked to provide them with the technology for new cards.
In the UK, Visa has been in tight competition with Mastercard for some time, and between them they process the vast majority of transactions. American Express is a notable competitor too, though they are somewhat of an outlier, since they are both a bank (like Barclays) and a card issuer (like Visa) in their own right. On top of this, you have more innovative tech-aligned competitors such as PayPal fighting for space, too.
Technically speaking, Visa is no longer the most dominant player in the card payment market – UnionPay over in China has issued more cards and handles the most transactions in terms of value. However, their market is very heavily centred in China (with much less of an international element, as is often the case with Chinese-based companies which ride on the back of China’s general economic growth), and so Visa is often still seen as the most important ‘international’ provider of card payment services around the world.
Over in the United States (where this case is going to court), the payments market is largely dominated by the same big three (Visa, Mastercard, and American Express).
Generally, the US has been slower than the UK (perhaps surprisingly) to adopt new payment technologies – for example, BNPL (buy now, pay later) schemes were dominant in the UK for some years before attempting to push into the American market.
The UK has also been more generally accepting of the move to a cashless society than Americans, according to the latest market research (which, naturally, aids the profits of companies like Visa). London in particular has become somewhat of a transactional titan when it comes to alternative payment methods in recent years (it has a booming ‘fintech’ industry). Therefore, competitors like PayPal are certainly giving mainstream banks and payment providers a run for their money.
Over in the US, the Department of Justice are arguing that Visa have been stifling a significant amount of competition in the payment services market. They started their investigations all the way back in 2021, and have been quietly gathering evidence since. The main concern is that their market dominance has led to somewhat of a monopoly, which in turn means merchants (often passed on to consumers through higher item pricing) are paying more than they would be in a ‘competitive market’.
The Biden administration has, to generalise, taken a relatively intense approach to regulating such antitrust concerns (as would generally be expected from the Democrats, who are often seen as taking much less of a laissez-faire position on governance).
The lawsuit specifically states that Visa now manages over 60% of debit transactions in America, generating over $7 billion in fees. One of the primary concerns is that Visa’s business model forces businesses (who have few other options in terms of shopping around) to sign long-term contracts with set minimum transaction volumes (labelled ‘exclusive deals’ – potentially illegal) that make it even harder for them to go elsewhere.
This is not the first time Visa has faced such criticism, either. European regulators have similarly been keeping a check on the debit card giant’s market share and practices, too.
Visa has responded via their general counsel (head lawyer) Julie Rottenberg, who states that the claims are ‘meritless’ and that ‘today’s lawsuit ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving’. They have also laid out their intentions to ‘defend ourselves vigorously’.
The solicitors and barristers of tomorrow can take a great deal of points from this story into their upcoming applications – whether for vacation schemes, pupillage, or any other opportunities.
Thinking about practice areas is particularly useful here. First, there is the obvious one – competition law. In the top UK law firms (think Magic Circle, elite US, etc), this will often come under Public Law teams, and involves understanding the interaction between private and public bodies (such as how to win cases against a regulator). Another area of focus here is banking – having specialist technical knowledge of financial services as an industry is key to representing such clients effectively when they are being challenged in this way.
You might also want to think about commercial awareness more generally – Visa’s shares fell by 5% following this announcement, and both the outcome of this US case and the way it is handled throughout is likely to affect consumer and investor trust in the payment services giant for years to come.
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