Visa's Hidden Tax on Americans

While Americans rely on debit transactions for the necessities of life, most are unaware of the networks that drive those transactions, nor are they aware that one company, Visa, has monopolized debit transactions, penalized industry participants that seek to use alternative debit networks, and co-opted innovators, technology companies, and financial institutions to forestall or snuff out threats to Visa's debit network dominance.” So begins the monopolization lawsuit filed on September 24 by the United States Department of Justice (DOJ) against the country’s largest card company, Visa Inc. On one level, the case is simple: The DOJ alleges a clear violation of laws protecting markets against monopolies. But the case gets more complicated when looking at the details, in part because payment systems are mostly invisible part of the financial ecosystem. In effect, the DOJ alleges that Visa is pulling the levers of a really opaque and complex system to preclude competition and squeeze fees out of banks and vendors for itself.To understand the complexities and implications of the case, Bethany and Luigi are joined by Kathryn Judge, Harvey J. Goldschmid Professor of Law at Columbia University. Judge is an expert on banking, financial crises, regulatory architecture, and intermediation design beyond finance. Her book, Direct: The Rise of the Middleman Economy and the Power of Going to the Source (HarperBusiness, 2022), was on the long list for the Financial Times Business Book of the Year Award. Together, the three of them discuss both the surface-level and structural issues of an economy where consumers and small businesses are shortchanged on what is essentially a private sales tax on all debit-card purchases—and how to look for collective solutions when opt-outs aren’t possible. Episode Notes: Also check out the ProMarket article “A DOJ Victory Against Visa May Not Help Merchants or Consumers” by Lulu Wang, Assistant Professor of Finance at Northwestern University’s Kellogg School of Management.