“We don’t take American Express.” Those five words kept coming to mind last week while reading about the Department of Justice’s (DOJ) antitrust case again Visa.
To which some will reply that the DOJ’s lawsuit isn’t about competition in the credit card space, rather it’s about Visa’s alleged abuse of its supposedly “dominant” position in the debit card market. True enough, yet it speaks to the relevancy of “We don’t take American Express.”
Visa has been able to build an enormous foothold in the credit-card market for many reasons, including that its swipe fees are less rich than those of American Express. As a consequence there are businesses of all kinds that won’t take Amex, but that will take Visa. Call it market competition at work.
Too simplistic? Maybe so, but that’s the point. Markets are very simple. And one crucial feature of them is that profits attract competition.
Applied to credit cards, a New York Fed study from over the summer indicated Americans have collectively amassed over $1.15 trillion in credit-card debt. Americans produce in gargantuan fashion, hence they’re able to run up debt in sizable amounts.
As a consequence they have American Express and Visa fighting it out for the chance to finance some of the spending, but also Discover. Thinking about Discover, how very odd that Discover’s would-be combination with Capital One is being held up at the same time that Visa is being accused of monopolistic practices?
Ok, maybe it’s not so odd. This is government, after all. Right as competitors gear up to win share of a growing pie, government sees fit to restrain the very competition that it professes to desire. The main thing is that where consumers are in abundance, so are there service providers searching for ways to lower their prices.
Importantly, and crucially with regard to the baseless allegations against Visa, investors reward those most capable of pushing down prices. See Walmart’s market cap, see Amazon’s, and when you’re done there see Alphabet and Meta too.
Applied to the credit card space, Visa is already experiencing enormous competition. Just as some retailers don’t take American Express, some would prefer that customers not pay with Visa either. Checks rate a lower price, as does the usage of debit cards. Cash is king inside many retailers. Which should amount to an “aha” of sorts for the antitrust team inside the DOJ.
It’s a reminder that Visa itself recognizes that market prices of any kind are more than a bit historical. They’re always and everywhere competed to the benefit of consumers and businesses. Call the proliferation of debit cards further market evidence of this truth. Call it Visa competing with Visa.
Despite this, Attorney General Merrick Garland alleges that “Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market.” Garland fails twice, or realistically many times. For one, as this is being written more and more transactions are of the peer-to-peer (P2P) variety (think Venmo, Zelle, Square, etc.) whereby credit and debit fees are avoided altogether, particularly if the seller doesn’t require the money right away.
Second, Garland’s gossamer-thin accusation imagines that debit cards exist as the frontier beyond which transactions will not go. Which is Garland contradicting himself. He can’t allege massive market power amassed by Visa out of one side of his mouth, all the while alleging impregnable monopoly out of the other. As the evolution of transactions reveals, it’s high prices that instigate the arrival of competitors eager to profit handsomely by facilitating exponentially more transactions at lower and lower prices per transaction.
In other words, if the DOJ fears Visa is too profitable, sit back and allow it to profit. The lone cure for alleged market dominance is market dominance.
