Visa Debit Card Business: Is it Anti-Competitive?

by Ron Mazursky 0

Pulse Network (a unit of Discover) has filed a lawsuitagainst Visa claiming Visa’s practices relating to debit cards isanti-competitive. Among these practices is a rule implemented by Visa that requiresthat its financial issuers of Visa signature cards also include its PINservices instead of using other PIN services such as Discover’s PulseNetwork.

Visa’s new debit card strategies are actions taken by Visato stem the loss of debit market share as a result of the Durbin Amendment’sdual unaffiliated EFT network routing requirements. The Interlink debit network of Visa lost 54%of its volume the quarter following implementation of the Durbin Amendment inApril 2012.

Two analysts from Sterne Agee have disagreed with thepremise of Discover’s lawsuit.

“Sterne Agee analysts,Thomas McCrohan and Leonard DeProspo said the argument of Discover FinancialServices Inc. (NYSE:DFS) that the debit practices of Visa Inc. (NYSE:V) areanti-competitive would imply that merchants are paying higher prices for debitcard transactions. However, the analysts noted it was not the case.”

Additionally, “Theanalysts noted that competition became stronger between networks and variousEFT networks to win volume from merchants after the implementation of Durbinmandate. McCrohan and DeProspo emphasized that the basis for the competitionwas the net cost of acceptance.”

Effectively, the analysts described the Visa pricingstrategies as effectively bundled pricing which put “downward pressure” ondebit pricing.

Discover, however, has a different perspective. Back in May2012, after the original pricing strategies were implemented, Discover CEODavid Nelms said, “Obviously, in debit, one competitorrepresents 70% of the market share, so when that 70% market-share competitor makesmoves tying products together and launching fixed-variable pricing designed totake advantage of that 70% market share, we and many others in the industrybecome concerned about having a level playing field.”

Visa, on the other hand, explained that they reviewed thepricing strategies with the Department of Justice (DOJ) prior to implementingthem, and were allowed to go ahead with the implementation. The DOJ launched an investigation of the Visapricing strategies including the Fixed Acquirer Network Fee (FANF) and PIN-AuthenticatedVisa Debit (PAVD) back in 2012 and no action has been taken to date. It lookslike Discover no longer wishes to wait for the government to finish itsinvestigation.


Overview by Ron Mazursky, Director, Debit Advisory Servicefor Mercator Advisory Group

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