By Giovanna Massarotto
In the emerging digital economy, antitrust regulation has come to the forefront. After being declared dead in 2017, antitrust is back on the scene by reviving the trust-busting era. In recent years, multiple antitrust proceedings have been opened against Google, Amazon, Meta, and Apple. The Department of Justice (DOJ) Antitrust Division’s latest target is Visa, the leading payment system provider, following its prior investigation into Visa’s attempted acquisition of the fintech company Plaid.
The financial sector has long been criticized for excessive concentration, calling for stronger antitrust enforcement—a need amplified by the rise of crypto and digital platform-based finance. Antitrust agencies must oversee such a technological transformation that is reshaping competition dynamics, focusing on those companies that have the most at stake in this innovation process, and ensuring competition.
This post explores the role of antitrust regulation in digital finance by examining the current antitrust Visa case and its implication in the fintech industry. This post will introduce the fundamental role of antitrust regulation in digital finance. It will discuss what antitrust agencies can and should do to secure competition and protect consumers amid rapid technological changes by driving innovation.
The Visa Antitrust Saga is On
On September 24, 2024, the DOJ Antitrust Division filed an antitrust action against Visa, accusing it of monopolizing and engaging in other anticompetitive conduct in debit network markets in violation of Sections 1 and 2 of the Sherman Act. This is just the beginning of an antitrust story that could evolve into a saga, much like the Microsoft antitrust case, and has the potential to reshape the future of digital payments.
To be fair, this story goes back to Visa’s announced acquisition of the fintech company, Plaid, in 2020. In November 2020, the DOJ filed an antitrust lawsuit blocking Visa Inc.’s $5.3 billion acquisition of Plaid Inc. Visa was recognized as a monopoly in online debit services by controlling approximately 70% of the online debit transactions market and Plaid as the nascent competitor, capable of threatening Visa’s monopoly through innovation. Plaid built a data transfer network that was aimed at challenging Visa’s dominance by powering fintech apps that today include Venmo, Coinbase, and Robinhood.
In other words, the transaction was perceived as a possible ‘killer acquisition,’ where a purchase is intended to eliminate a promising competitor and, in the end, Visa abandoned its $5.3 billion acquisition of Plaid. However, this did not stop the DOJ, which is now accusing Visa of monopolizing debit network markets and engaging in other anticompetitive conduct, including exclusionary agreements with PayPal and Apple, which it alleges are raising consumers’ prices and stifling innovation. According to the DOJ, Visa has leveraged its debit card monopoly to “thwart the growth of its existing competitors and prevent others from developing new and innovative alternatives.”
Although I have always felt skeptical about people attempting to predict the future, I will offer a few insights on how this case could develop by drawing lessons from the past. About ninety percent of antitrust cases are settled using consent decrees, which impose regulatory remedies to address breaches. Both the government and companies under investigation favor settlements to save time, money, and avoid the uncertainty of a trial. Companies are incentivized to offer significant remedies, as consent decrees do not impose liability findings, thereby limiting treble damage claims. Therefore, a consent decree to settle the Visa case is likely.
If this case were settled with a consent decree, one possibility is that, in addition to refraining from engaging in the accused exclusionary and anticompetitive practices that can reduce consumers’ options and increase prices, Visa might agree not to enter into peer-to-peer payment systems like Venmo or provide infrastructure for data connectivity in direct competition with Plaid. In other words, Visa might agree to implement line-of-business restrictions. This remedy could mitigate antitrust concerns about Visa leveraging the alleged monopoly in the debit network markets to extend its dominance into other markets, including peer-to-peer payment systems like those based on blockchain (e.g., Bitcoin and Ripple), by spurring innovation.
This potential remedy is particularly interesting in this case for two main reasons. First, it has been previously foreseen in banking sector regulation. The Glass-Steagall Act of 1933 established line-of-business restrictions on commercial banks by legally separating commercial banking from investment banking. The advantage of using antitrust is that the remedy is imposed on the specific company under investigation, and not on the entire industry. Additionally, it is tailored to the specific circumstances of the case at hand lasting for a specific timeframe during which the remedy can terminate if it becomes ineffective.
Second, this remedy turned out to be quite successful in the AT&T consent decree of 1956, where markets were going through a similar technological disruption with the rise of the Internet. At that time AT&T raised similar monopolization concerns in the telephone industry and the company agreed not to engage “in any business other than the provision of common carrier communications services” to settle the case. Importantly, this remedy prevented AT&T from entering the computer industry which enabled other companies to flourish and innovate and AT&T to remain dominant in the telephone-regulated industry. Interestingly, after the antitrust consent decree of 1956, two computer scientists at AT&T Bell Labs developed the Unix operating system, but because of the line of business restriction remedy, AT&T could not sell Unix. AT&T decided to license Unix to universities free of charge or in exchange for a nominal fee. Unix was developed all over the world through a joint effort becoming the most important operating system of all time. Additionally, a version of Unix was used in the creation of Arpanet, the first internet network enabling the connection of “about 90% of the research university community.” Therefore, this remedy was particularly successful in terms of fostering innovation and competition in the computer industry.
Remedies enshrined in consent decrees typically foresee the duty of the company to periodically submit compliance reports to the antitrust agency for monitoring companies’ compliance with imposed remedies. Often a monitor trustee is also appointed to oversee the compliance process.
Therefore, although each case is unique and needs to consider circumstances that constantly change, the proposed scenario is not so unlikely and could deeply affect the fintech and digital assets world. This case has the potential to shape the future of payment systems through customized regulatory remedies for its leading player, helping to mitigate the risk of a reduction in competition in a critical sector—particularly when it involves advancement in technologies and lower prices for consumers.
This is only an example of how antitrust can provide a valuable regulatory framework in the digital economy through consent regulation and tailored remedies. Its flexibility and emphasis on consumers and competition dynamics raises the question of whether antitrust can be the regulatory antidote that fast-moving technological markets need.
Giovanna Massarotto is Academic Fellow at the Center for Technology, Innovation & Competition at the University of Pennsylvania Carey Law School. The views and ideas expressed in this post are those of the author and do not necessarily represent those of the Wharton School or the Wharton Initiative on Financial Policy and Regulation.