Payments Update: Visa Lawsuit with Kevin Von Holten

Department of Justice files a lawsuit against Visa. I asked Kevin Vogel to join us here to talk a little bit about what’s going on and what the implications might be for us.

So, yeah, gotta love all these lawsuits coming out toward the payment guys, right?

Yeah. It seems to never stop. It’s coming from all directions.

So tell us about this one. What’s going on with Visa and the DOJ?

Yeah, so I haven’t had a chance to dig too deep into it, but essentially the argument the Department of Justice is making is that Visa has engaged in anti-competitive practices, violating the Sherman Act by encouraging and steering people toward Visa transactions and away from the regional PIN secondary networks.

So their approach, or the accusation, is that they have created a structure around incentives and other things for merchants specifically, and to some extent issuers, that have created an anti-competitive environment that violates the Sherman Act and drives more people to Visa, eliminating the potential competition of creating secondary networks or secondary networks growing.

So at the end of the day, what does this actually mean for community institutions?

I think there are two sides of it. The biggest accusation is around penalties that are structured into merchant agreements, so merchant acceptance and the percentage of transactions they use.

There are some examples talking about where, if I don’t route volume, the discounts that I’m promised through Visa basically get eliminated and I pay full price if I don’t bring significant amounts, if not all, of my volume through Visa.

So that discourages merchants from routing those other transactions.

Not a lot of our clients, candidly, are in the merchant business, so that’s less of an issue for us. It’s more on the merchant side in terms of their ability to continue those incentives.

They did, though, in the filing also talk about the issuer incentives, which we all know as branding agreements, right? Where they encourage volumes to be driven toward Visa.

Now, what’s interesting there, obviously the risk is that branding agreements for Visa and Mastercard go away, which is a significant impact to issuing institutions.

I think the challenge and the hurdle that the DOJ is going to have is in really demonstrating how that would actually drive volume because, as we know as issuers, we have no control over how that volume gets steered.

So I think it’s difficult to tie the traditional branding agreements for issuers into this and be able to tie that together in a way that really demonstrates any kind of anti-competitive behavior, because the issuer ultimately doesn’t have any control over that routing because of the merchant steering requirements around the Durbin Amendment.

Yeah, exactly. And I think one point that we need to bring up for everyone is, yes, this is in the news today. Yes, everyone’s hearing about it. We’re not going to see any sort of settlement for a long time or really know the true implications of what’s going to come of this lawsuit.

Yeah, I think that’s super important. You’re not going to see a situation where branding agreements are going to immediately evaporate or something’s going to change quickly.

Obviously, Visa has been very clear about fighting this and not believing it’s a valid argument.

If you just look at the lawsuit that the merchants filed years ago against Visa, and the attempted settlement a few months back, that lawsuit I think launched probably in the early 2010s, if I remember correctly. So that’s been in ongoing litigation for over a decade at this point.

So I think you’re absolutely right. I don’t think anybody needs to do anything yet, but it’s certainly something we’re going to keep a close eye on and be cognizant of as we think about long-term agreements that our clients might sign for branding purposes and some of the potential long-term implications on the payments revenue side of the equation for us as issuers.

So it could definitely be an impact for them in the future. We’ve already been hit with Durbin. This could just be another thing coming down the road.

Just one more thing. I guess we have four on the list now instead of just three. So we definitely have to look at that.

And the Visa settlement is still hanging out there. That judge is going to rule at some point as well. That’s got other implications for sure.

Yep.

Absolutely.