Visa (NYSE:V) has apparently become a target for government scrutiny — the Justice Department is investigating the payment card giant for anticompetitive practices in the massive debit card segment.
Justice’s antitrust unit is currently probing whether the company has restricted merchants accepting Visa transactions from conducting those transactions via other payment card networks. At times, such networks can be cheaper for the merchant.
These network fees, as they are known, are an important source of revenue for credit card companies like Visa. They are particularly critical for “open loop” operators like the company and its arch-rival Mastercard. In contrast to “closed loop” companies like American Express and Discover that also act as the card’s issuers (and thus the entities providing the funds for the customer), Visa and Mastercard aren’t issuers themselves, and thus depend on such fees for their business.
Justice’s Visa probe is part of broader federal scrutiny of online commerce, which has grown to gigantic proportions. A great many payment card transactions are made online, with the growing prominence of this form of commerce and the ever-increasing use of smartphones as devices for remote shopping.
In a regulatory filing submitted on Friday, Visa wrote that Justice has notified it of the investigation. The company said it is cooperating with the probe, although it wrote, “We believe Visa’s U.S. debit practices are in compliance with applicable laws.”
While Visa is a massive, and massively profitable, company and therefore should survive even if found guilty of wrongdoing, investors aren’t exactly pleased that it’s under the microscope. On Friday, Visa’s shares fell by more than 6.2%, against the generally flat performance of the S&P 500 index on the day.
