Antitrust Law Daily Wrap Up, ANTITRUST—S.D.N.Y.: Visa’s bid to dismiss Justice Department antitrust suit over debit network monopoly ‘declined’, (Jun 25, 2025)

By Martin A. Steinberg, J.D.

The government accuses Visa of unlawfully monopolizing the debit card network market by imposing de facto exclusive dealing contracts on banks, merchants, and fintech firms, thereby suppressing competition and maintaining its dominant market position in violation of the Sherman Act.

The federal district court in New York City denied Visa Inc.’s motion to dismiss a federal antitrust lawsuit brought by the DOJ. The government alleged that Visa monopolized and attempted to monopolize the market for general-purpose debit network services and a submarket for card-not-present debit transactions, in violation of Sections 1 and 2 of the Sherman Act. Central to the allegations are Visa’s contracts with banks, merchants, and fintech firms, which the DOJ claimed function as de facto exclusive dealing arrangements that stifle competition and innovation. These contracts allegedly include steep penalties and incentive structures designed to prevent rival networks from gaining scale and to limit the choices of merchants and consumers. The court found that the DOJ plausibly defined the relevant markets and alleged anticompetitive conduct, allowing the case to proceed beyond the pleadings stage (U.S. v. Visa, Inc., No. 1:24-cv-07214-JGK (S.D.N.Y. Jun. 23, 2025)).

The debit transaction ecosystem involves multiple participants: consumers, merchants, their respective banks as issuers and acquirers, and the debit networks that facilitate the transactions. Visa has long operated the largest debit card network in the U.S., enjoying a front-of-card brand presence on over 70% of debit cards and controlling around 60% of all debit transactions. Its share rises to 65% in the rapidly growing CNP market, which encompasses online and app-based debit payments.

The DOJ’s complaint alleged violations of Section 1 of the Sherman Act for unlawful contracts and combinations in restraint of trade, as well as Section 2 of the Sherman Act for monopolization and attempted monopolization through exclusionary conduct. The DOJ alleges that Visa’s dominance is not just a result of market success but also a product of exclusionary conduct. Specifically, Visa is accused of using de facto exclusive dealing contracts—especially with large merchants, acquirers, and issuers—to foreclose competition. Visa allegedly structured these contracts to share monopoly profits with compliant partners while punishing any efforts to shift volume to rival debit networks, such as the smaller PIN networks or emerging fintech alternatives.

Visa supposedly employed multiple contracting strategies to maintain its dominance in the debit network, despite regulatory reforms such as the Durbin Amendment and Regulation II, which were designed to open up routing competition and cap interchange fees for large banks. Visa entered into contracts with over 180 of the most prominent merchants and acquirers, covering more than 75% of Visa’s debit volume. These contracts required the routing of 90—100% of eligible debit transactions to Visa. In return, Visa offered fee discounts and waived fixed fees, such as the Fixed Acquirer Network Fee (FANF), but imposed steep penalties and clawbacks if the routing thresholds were not met. In effect, merchants faced cliff pricing, with a reversion to higher rack rates if they diverted a significant portion of their transaction volume to other networks.

On the issuer side, Visa’s contracts include volume targets, offering financial incentives in exchange for routing commitments. Visa allegedly penalizes issuers who fail to meet these targets with significant monetary consequences, including early termination fees. Some contracts, such as the one with JPMorgan Chase, restricted the enablement of competing PIN networks, particularly for card-not-present transactions.

Visa also targeted fintech disruptors such as PayPal, Square, and Apple. The DOJ alleges that Visa provided lucrative incentive contracts to these firms, conditioned on their agreement not to compete directly with Visa’s debit services. For example, Visa allegedly induced PayPal and Square to sign restrictive contracts under threat of imposing special fees on digital wallets. Visa purportedly used these deals to limit ACH-based competition, obtain preferred routing, and block access to alternative rails.

Visa’s contracts with fintech firms allegedly included non-disparagement and non-steering provisions, limiting these partners from promoting lower-cost alternatives or building new payment products. In Apple’s case, Visa reportedly paid hundreds of millions of dollars in return for Apple's agreement not to develop payment solutions that would bypass Visa’s rails.

Visa moved to dismiss the complaint on three grounds. First, the Government’s alleged product market is implausible because it excludes other payment networks that, like debit networks, facilitate the transfer of money between bank accounts. Second, the complaint fails to allege anticompetitive conduct and thus harm to competition because the complaint does not allege that Visa discounted prices for Visa debit below its costs. Third, the terms of its current contracts disprove and defeat the allegation that Visa agreed with competitors and potential competitors not to compete.

Relevant Markets. The court found that the DOJ had plausibly alleged that interbank networks were not reasonable substitutes for debit networks. To proceed under Sections 1 or 2 of the Sherman Act, a plaintiff must plausibly allege anticompetitive conduct within a well-defined relevant market. This includes both a product and a geographic market. Visa only contested the product market.

A product market includes all products that are “reasonably interchangeable by consumers for the same purposes,” based on factors like cross-elasticity of demand. The court acknowledges that this is a “relatively permissive” pleading standard, citing the Second Circuit’s caution that courts should hesitate to dismiss complaints solely on market definition grounds unless the market is facially implausible.

The government defined two relevant product markets: (1) the general-purpose debit network services market, which includes debit card networks and fintech debit networks, but excludes credit card networks, prepaid cards, cash, checks, and interbank payment systems such as ACH, RTP, and FedNow; and (2) the card-not-present (CNP) debit network submarket, which focuses on online and app-based transactions.

DOJ plausibly alleged these market definitions, particularly by identifying four essential features of debit network services that interbank networks lack: (1) real-time transaction rails, (2) dispute and chargeback capabilities, (3) merchant payment guarantees, and (4) fraud protection mechanisms. Interbank networks, such as ACH and FedNow, although functionally similar in transferring funds, were excluded because they lacked at least three of these key features.

Excluded from both markets were general-purpose credit cards, prepaid/store cards, cash/checks, and, crucially, interbank payment networks such as ACH and RTP. Visa argued that excluding interbank networks—services that also transfer funds between bank accounts—rendered the market definition implausibly narrow. The court, however, found the DOJ’s exclusion of interbank networks to be plausible and adequately supported by factual allegations. The government alleged that interbank networks lack key features that define debit networks for consumers and merchants, namely real-time transaction processing, dispute and chargeback rights, payment guarantees for merchants, and fraud protections.

To define the relevant market, courts often apply the “hypothetical monopolist test.” This test examines whether a firm with 100% control over the alleged market can impose a small but significant and non-transitory price increase (SSNIP) profitably. If enough customers were to switch to outside alternatives, the market would be too narrow.

The complaint alleges plausibly that a hypothetical monopolist could impose a profitable SSNIP in the proposed product market. This is because demand is plausibly alleged to be bilaterally inelastic. On the cardholder side, tens of millions of Americans allegedly prefer or must rely on debit. Some consumers, for example, choose the spending discipline of using only available funds; others are unable to obtain credit. That creates inelastic merchant demand because merchants do not want to risk losing sales by not accepting many consumers’ preferred payment method.

The court then applied the Brown Shoe factors, which are practical indicia of distinct market boundaries, reinforcing the DOJ’s definition. These can include ‘industry or public recognition of the market as a separate economic entity, the product’s peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors. The court found that these practical factors supported the notion that general-purpose debit networks form a distinct economic market and that interbank systems are not viewed as realistic substitutes for them. Visa’s documents indicate that the payment networks industry distinguishes between debit and other payment methods.

Exclusive Dealing Contracts. Next, the court addressed Visa’s argument that the DOJ’s claims failed because the complaint did not allege predatory pricing. The court rejected Visa’s request for the court to adopt a per se rule of legality for volume discounts because the DOJ was not bringing a predatory pricing case but instead alleged that Visa’s conduct harmed competition through non-price exclusionary mechanisms. Specifically, the DOJ contended that Visa’s loyalty contracts allowed it to charge supracompetitive prices by suppressing rivals’ ability to compete at scale.

Accordingly, the court held that Visa’s conduct should be analyzed under the rule of reason, which weighs anticompetitive harms against any procompetitive justifications. Non-price mechanisms, such as exclusivity penalties, contract duration, and market foreclosure, can constitute exclusionary conduct even when no prices are set below cost.

Exclusive dealing typically involves an agreement that requires a buyer to deal exclusively with a seller for a specific product or period. To be held unlawful under the rule of reason, an exclusive dealing arrangement must foreclose competition in such a substantial share of the relevant market as to adversely affect competition. When practiced by a monopolist, it may deny rivals the scale needed to compete effectively.

Price-cost test. The complaint plausibly alleges that Visa used its power to disrupt the competitive mechanism and deprive customers of the ability to make informed choices, the court decided. The price-cost test shields genuine price discounts from claims of predatory pricing. Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222—24 (1993). When the price-cost test applies, the plaintiff must prove that the defendant’s prices “are below an appropriate measure of the defendant’s costs.” To avoid chilling procompetitive conduct, courts apply the price-cost test not only to predatory pricing claims, but also to claims alleging that the defendant’s actions directed at price itself excluded rivals from the relevant market.

Agreements not to compete. Visa’s final argument was that the terms of Visa’s current contracts with Apple, PayPal, and Square defeat the Government’s claim that Visa agreed with competitors and potential competitors not to compete. However, that argument ignored the complaint’s allegations about Visa’s courses of dealing with Apple, PayPal, and Square. The question of whether Visa’s partner agreements unreasonably restrain competition, contribute significantly to Visa’s alleged maintenance of a monopoly, or both, cannot be answered at the pleading stage.

Visa’s partner contracts allegedly provide discounts and incentives in a “quid pro quo” manner that amount to a horizontal product market division and unreasonably restrain competition. These contracts allegedly give Visa the ability to charge partners high rack rates and behavioral fees if the partner begins to compete directly with Visa. Visa has allegedly used or threatened to use that ability to punish partners in the past. Taken together, these allegations plausibly suggest that Visa’s contracts with competitors and potential competitors had an actual adverse effect on competition as a whole in the relevant market.

The Case is No. 1:24-cv-07214-JGK.

Judge: Koeltl, J.

Attorneys: Aaron Teitelbaum (Kressin Powers LLC) for the U.S. Anne P. Davis (Arnold & Porter Kaye Scholer LLP) for Visa Inc.

Companies: Visa Inc.

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