Justice Department Continues Probe into Discover and Visa

by Mercator Advisory Group 0

Discover announced Thursday that the Justice Department has asked for information regarding potential antitrust violations by a third party. According to Discover, the Justice Department is seeking information on potential violations of Sections 1 and 2 of the 1890 Sherman Act which deal with specific actions of anticompetitive conduct and the end results of this behavior by an unidentified party other than Discover.

The actions of the Justice Department follow a recent trend as Visa revealed that in May, the Department was probing its post-Durbin business strategies for similar issues with anticompetition laws. The Department’s inquire into Visa likely revolves around the company’s new pricing strategy introduced this year to protect its market share following the changes implemented with the Durbin Amendment.

Bryron Pollitt, chief financial officer of Visa concluded in May, “There was no way to respond to the new legislation without surrendering market share and with merchants now making the routing decision at the point of sale … it made all the sense in the world to re-adjust our approach to pricing since the retailer is going to be most sensitive … to the price.” This stance by Visa underscores the changed interchange landscape and the need for new business strategies that build around the new regulatory changes.

The recent actions taken by the Justice Department into Discover and Visa highlight that the market is still attempting to find the post-Durbin equilibrium and remains very much in flux. While the inquiries into Discover do not appear to be of the same significance of Visa, the developments should be closely followed as the payments industry attempts to recalibrate itself following the Durbin Amendment.

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