To a long list of companies crying foul over Visa Inc.’s pricing models, add Discover Financial Services. Discover’s debit unit, Pulse Network LLC, recently filed a lawsuit against Visa in a federal court in Texas alleging Visa undermines competition in the debit network world. The network is asking the court to “enjoin Visa’s ongoing violations of antitrust laws” and award Pulse compensation for revenues lost due to the challenged policies.
This isn’t the first time Discover has taken Visa to court. In 2008, Discover ended up with out-of-court settlements with both Visa and MasterCard for a long-time practice the two bankcard companies had of not allowing financial institutions that offer Visa and MasterCard to also issue Discover cards. That suit was sparked by a 2004 federal court ruling that the prohibition violated federal anti-trust laws. American Express Co., which was also covered by the 2004 ruling, sued Visa and MasterCard separately, and also negotiated out-of-court settlements with both.
The latest legal challenge (Pulse Network LLC v. Visa Inc.) filed in U.S. District Court for the Southern District of Texas, in Houston, alleges Visa is attempting to monopolize the debit market, engaging in restraints of trade and various violations of the Sherman Anti-Trust Act.
“Visa is a longtime monopolist in the general purpose debit card network services market in the United States,” the Pulse complaint stated. “In order to maintain its monopoly, Visa has undertaken a series of illegal actions that undermine competition – harming rival debit networks, merchants, acquirers, card issuers and consumers.”
Pulse, one of the oldest debit card networks in the nation was the first to introduce ATM convenience fees nearly 20 years ago, and one of the first to support PIN debit POS payments, almost 30 years ago. Pulse was acquired by Discover in 2004.
Like all ATM networks, Pulse requires transactions be authorized by PIN. Visa also supports PIN debit, although it primarily promotes signature debit, which commands higher network fees than PIN debit. Under the Durbin Amendment to the Dodd-Frank Act of 2010 and its implementing regulations, financial institutions issuing debit cards must render the cards capable of processing through at least two debit networks, to provide merchant choice. But Visa has stacked the odds against competing debit networks, Pulse complained, by requiring all financial institutions issuing Visa-branded signature debit cards to include PIN authorization functionality with those cards.
Crying foul over fee ‘incentives’
Visa has introduced financial incentives for merchants to send debit card payments through Visa’s debit network instead of rival networks like Pulse, the complaint stated. These include the Fixed Acquirer Network Fee, paid by acquirers for each merchant location, a new monthly fee for card-not-present merchants, and sweetheart deals for high-volume merchants. One result has been merchants and acquirers now must effectively pay twice when routing debit transactions to any network other than Visa, Pulse noted. “Visa also is structuring and enforcing its agreements with issuers in ways to impede Pulse and other PIN debit networks in their efforts to develop new products and compete with Visa’s signature debit business,” Pulse contended. “The net effect is that Visa is thwarting nascent competition that would otherwise result in lower network costs for merchants, acquirers, issuers and ultimately consumers.”
Pulse, in its complaint, said that in the four quarters ending June 30, 2014, it processed 4.2 billion debit card transactions worldwide, worth a total of $163 billion. (Pulse supports international ATM access for Discover and Diner’s Club cards.) During the same period, Visa processed 93.9 billion credit and debit card payments worth a total of $7.2 trillion.
“Visa’s anticompetitive conduct has already directly injured Pulse and, if unchecked, will continue to injure Pulse in a substantial manner,” the Pulse complaint stated.