--:-- [Theme music fades out]
--:-- Host (Jessica Mendoza): Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza. It's Monday, September 30th.
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--:-- Host (Jessica Mendoza): If you pull out your wallet and take a look at your debit cards, what logo do you see in the lower right corner?
--:-- Guest (Angel Au-Yeung): I asked our colleague Angel Aoyang the same question. Angel, do you have your wallet on you by any chance?
--:-- Angel Au-Yeung: Yeah, I do, I think.
--:-- Host (Jessica Mendoza): Yeah? If you wouldn't mind pulling out maybe two or three cards that you have there and naming the network on each card.
--:-- Angel Au-Yeung: Visa and Visa. Yeah. Nothing else, just Visa.
--:-- Host (Jessica Mendoza): Wow. Odds are, you're like Angel. Most of your cards will also be Visa cards.
--:-- Guest (Angel Au-Yeung): That's because Visa owns the largest payments network in the U.S. It connects tens of thousands of banks to millions of businesses, facilitating everyday transactions.
--:-- Host (Jessica Mendoza): Visa dominates the debit market. But how the company became so dominant is contentious.
--:-- Guest (Angel Au-Yeung): And it's part of a new antitrust lawsuit from the Department of Justice.
--:-- Host (Jessica Mendoza): Last week, Attorney General Merrick Garland announced that the DOJ is suing Visa.
--:-- [Audio clip of Attorney General Merrick Garland plays]
--:-- Host (Jessica Mendoza): We allege Visa is a monopolist in the debit transaction markets that is violating federal antitrust law and inflicting often hidden but significant harm on American consumers and businesses.
--:-- Guest (Angel Au-Yeung): That's him speaking at a press conference last Tuesday.
--:-- Host (Jessica Mendoza): We allege that to maintain this monopoly power, Visa deploys a web of unlawful anti-competitive agreements to penalize merchants and banks for using competing payment networks.
--:-- Guest (Angel Au-Yeung): At the same time, it coerces would-be market entrants into unlawful agreements not to compete by threatening high fees if they do not cooperate and promising big payoffs if they do.
--:-- Host (Jessica Mendoza): Shortly after this lawsuit was filed, Visa came out with a statement that called this lawsuit from the Justice Department meritless.
--:-- Guest (Angel Au-Yeung): And they said that they will defend themselves vigorously.
--:-- Host (Jessica Mendoza): And how big a deal is this lawsuit? It is a big deal.
--:-- Guest (Angel Au-Yeung): I've been told by sources that this lawsuit, it is incredibly impressive.
--:-- Host (Jessica Mendoza): That some of the facts that the Justice Department has pulled up are damning.
--:-- Guest (Angel Au-Yeung): And it will be interesting to see how Visa will fight this.
--:-- Host (Jessica Mendoza): Welcome to The Journal, our show about money, business, and power. I'm Jessica Mendoza.
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--:-- Host (Jessica Mendoza): I'm Leanne, and I was diagnosed with brittle bone disease. Now I'm running the Bank of America Chicago Marathon for Lurie Children's.
--:-- [Audio clip of Leanne speaking plays]
--:-- Host (Jessica Mendoza): So every kid can just be a kid. Join Bank of America in supporting Leanne's cause. Give if you can at bfa.com slash support Leanne.
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--:-- Host (Jessica Mendoza): What would you like the power to do? Bank of America.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): References to charitable organizations is not an endorsement by Bank of America Corporation.
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--:-- Host (Jessica Mendoza): Why shop at Burlington? Maybe it's the deals that are new each time you drop by.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): Maybe it's the brand names you'll be shocked Burlington has in store.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): Or maybe it's the quality of the items, the amazing selection, and the newest trends.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): If you like to save but also like to stay in style, Burlington is your answer.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): And the question you'll be asking yourself is, why go anywhere else? Burlington.
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--:-- Host (Jessica Mendoza): The Justice Department's case against Visa is the latest in a series of antitrust lawsuits from the Biden administration against companies like Google.
--:-- Guest (Angel Au-Yeung): The U.S. Justice Department sued Alphabet's Google on Tuesday, accusing the tech giant of abusing its dominance in digital advertising.
--:-- Host (Jessica Mendoza): And Ticketmaster.
--:-- Guest (Angel Au-Yeung): The Department of Justice is taking aim at Live Nation the parent company of Ticketmaster saying the concert giant is just too powerful
--:-- Host (Jessica Mendoza): The Justice Department under the Biden administration for the last year, they've really been targeting the middlemen in the industry that take a cut out of all transaction fees.
--:-- Guest (Angel Au-Yeung): And is Visa a middleman in the same way, would you say?
--:-- Host (Jessica Mendoza): Yes.
--:-- Guest (Angel Au-Yeung): Visa was actually created to be a middleman, as a way to move money without cash or checks.
--:-- Host (Jessica Mendoza): It was started by Bank of America in the 1950s, originally as a credit card called Bank AmeriCard.
--:-- Guest (Angel Au-Yeung): And what it did was build a kind of highway between bank accounts and businesses.
--:-- Host (Jessica Mendoza): Bank AmeriCard. Think of it as money. Money when you're close to home. Money when you're away from home. Bank AmeriCard. It's money in a more versatile form.
--:-- Guest (Angel Au-Yeung): In the 70s, Bank of Mericard was spun off. That's why Bank of Mericard is becoming Visa.
--:-- Host (Jessica Mendoza): Visa went global and connected more banks and businesses, partly because it helped process transactions really quickly through its financial highways.
--:-- Guest (Angel Au-Yeung): I mean, today with the technology, it's immediate.
--:-- Host (Jessica Mendoza): In some ways, if you give cash to a cashier, that's still like a millisecond probably more immediate than a card.
--:-- Guest (Angel Au-Yeung): And part of Visa's technology is really being able to make that jump from a card to cash accepted by the business almost instantaneously.
--:-- Host (Jessica Mendoza): In exchange for making transactions fast and easy, Visa collects a fee.
--:-- Guest (Angel Au-Yeung): Every time you swipe your Visa at a store, a small amount of what you pay is taken and split up among a few different parties.
--:-- Host (Jessica Mendoza): Visa usually gets the largest cut.
--:-- Guest (Angel Au-Yeung): You swipe your debit card, and then the businesses will pay the banks, the card networks, any other players that are involved in making sure that that transaction goes through.
--:-- Host (Jessica Mendoza): How big of a burden is that fee to businesses?
--:-- Guest (Angel Au-Yeung): It's a huge burden.
--:-- Host (Jessica Mendoza): Because all of those swipe fees, they add up really quickly.
--:-- Guest (Angel Au-Yeung): And when you're talking to particularly small business owners, very often these types of swipe fees are, if not their highest operating expense, it's their second highest operating expense.
--:-- Host (Jessica Mendoza): Now, on the flip side of that argument, I do think it's important to point out that these card networks, they do offer a lot of services to the businesses.
--:-- Guest (Angel Au-Yeung): They're allowing the businesses to accept more types of transactions.
--:-- Host (Jessica Mendoza): They also monitor things in their networks like fraud, returns, which are both issues that would take up a lot of time for business owners to deal with on their own.
--:-- Guest (Angel Au-Yeung): So they are adding value to the commerce system at 1,000%.
--:-- Host (Jessica Mendoza): There is no doubt about that.
--:-- Guest (Angel Au-Yeung): But it is a burden on business owners.
--:-- Host (Jessica Mendoza): Do these business owners have to go through Visa? Do they have other options?
--:-- Guest (Angel Au-Yeung): They do have other options.
--:-- Host (Jessica Mendoza): There's Visa, and there's also MasterCard.
--:-- Guest (Angel Au-Yeung): Right. There's Discover.
--:-- Host (Jessica Mendoza): There are other card networks that are at play here.
--:-- Guest (Angel Au-Yeung): But at the end of the day, Visa is the most dominant.
--:-- Host (Jessica Mendoza): And how it's become the most dominant is a big part of this lawsuit.
--:-- Guest (Angel Au-Yeung): According to the DOJ, Visa started engaging in anti-competitive practices after a law was passed in 2010.
--:-- Host (Jessica Mendoza): That law was meant to give business owners greater choice as to which network they process transactions through.
--:-- Guest (Angel Au-Yeung): So that even if their customers paid with Visa cards, the businesses could use alternate networks like MasterCard and Discover to save on fees.
--:-- Host (Jessica Mendoza): After the law was passed, the Justice Department says Visa saw a decline in debit transactions going through its network.
--:-- Guest (Angel Au-Yeung): The company was losing business.
--:-- Host (Jessica Mendoza): So Visa made some changes.
--:-- Guest (Angel Au-Yeung): The way that Visa presented it to business owners is that we will give you a discount if you route the majority, if not all, of your debit transactions onto the Visa network.
--:-- Host (Jessica Mendoza): But the Justice Department says that this was not a discount.
--:-- Guest (Angel Au-Yeung): This was a punitive fine It was a punishment on businesses It was a punishment that if businesses did not route the majority of their debit transactions on the Visa network then they would face these fines
--:-- Host (Jessica Mendoza): According to the lawsuit, if a business decides to run even some of its debit transactions through other payment networks, Visa would raise its fee.
--:-- Guest (Angel Au-Yeung): And because Visa controls so many transactions, it's hard for businesses to avoid Visa altogether, which means that at the end of the day, it was cheaper to just stick with Visa to avoid higher fees.
--:-- Host (Jessica Mendoza): The DOJ argues that through this practice, Visa prevented businesses from going to competitors.
--:-- Guest (Angel Au-Yeung): But companies like MasterCard and Discover aren't Visa's only competitors.
--:-- Host (Jessica Mendoza): Over the last decade, tech companies have tried to gain a foothold in the payments industry.
--:-- Guest (Angel Au-Yeung): And according to the Justice Department, Visa has worked to shut them out too.
--:-- Host (Jessica Mendoza): That's next.
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--:-- Host (Jessica Mendoza): Tuesday on NBC, Jimmy Fallon and Bozema St. John host the highly anticipated new competition show.
--:-- [Audio clip of Jimmy Fallon speaking plays]
--:-- Host (Jessica Mendoza): I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands.
--:-- [Audio clip of Jimmy Fallon speaking plays]
--:-- Host (Jessica Mendoza): This is a huge opportunity. This is the battle for the next big idea.
--:-- [Audio clip of Jimmy Fallon speaking plays]
--:-- Host (Jessica Mendoza): This is not play play. We're spending millions of dollars.
--:-- [Audio clip of Jimmy Fallon speaking plays]
--:-- Host (Jessica Mendoza): I'm so excited to embark on this adventure with all of you.
--:-- [Audio clip of Jimmy Fallon speaking plays]
--:-- Host (Jessica Mendoza): Make the best idea win!
--:-- [Music transitions to a gentle background hum]
--:-- Host (Jessica Mendoza): On brand with Jimmy Fallon. Series premiere Tuesday on NBC.
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--:-- Host (Jessica Mendoza): This episode is brought to you by State Farm.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): Checking off the boxes on your to-do list is a great feeling.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): Whether you prefer talking in person, on the phone, or using the award-winning app, it's nice knowing you have help finding coverage that best fits your needs.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): Like a good neighbor, State Farm is there.
--:-- [Music transitions to a gentle background hum]
--:-- Host (Jessica Mendoza): Visa has successfully maintained its position as the dominant payment network.
--:-- Guest (Angel Au-Yeung): But over the last decade or so, new technology companies have come up with payment methods that are less reliant on Visa's infrastructure.
--:-- Host (Jessica Mendoza): Services like Cash App.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): That's money, that's Cash App.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): Venmo. We have Venmo, the app that makes paying your friends back more glorious than ever.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): And Zelle. Zelle, look for it in your banking app.
--:-- [Audio clip of a narrator speaking plays]
--:-- Host (Jessica Mendoza): As these apps and services become more popular, they're threatening Visa's dominance of the payment industry.
--:-- Guest (Angel Au-Yeung): Even with Cash App and Venmo, both of those companies for the majority of their history has been just sending money to friends, right?
--:-- Host (Jessica Mendoza): Both of those companies are now trying to incorporate a strategy where you can use their apps to pay at small businesses.
--:-- Guest (Angel Au-Yeung): So there is a lot of innovation happening.
--:-- Host (Jessica Mendoza): And of course, Visa is seeing all of those as potential existential threats.
--:-- Guest (Angel Au-Yeung): And according to the DOJ, Visa has been trying to get these companies off its turf.
--:-- Host (Jessica Mendoza): One big company that the Justice Department alleges Visa targeted is Apple.
--:-- Guest (Angel Au-Yeung): The lawsuit zooms in on a deal between Apple and Visa that the DOJ claims is anti-competitive.
--:-- Host (Jessica Mendoza): What's so interesting about Apple's innovation in the payment space is really around the Apple wallet.
--:-- Guest (Angel Au-Yeung): The Apple wallet is one of the biggest existential threats to Visa today.
--:-- Host (Jessica Mendoza): And the reason is you have cards in your wallet.
--:-- Guest (Angel Au-Yeung): Now those can be stored in the Apple wallet.
--:-- Host (Jessica Mendoza): What's stopping Apple from developing their own network, their own rails, where then an Apple iPhone user wouldn't need to put in their card information to pay for things?
--:-- Guest (Angel Au-Yeung): What is stopping Apple?
--:-- Host (Jessica Mendoza): What is stopping Apple?
--:-- Guest (Angel Au-Yeung): So in this lawsuit, it talks about Visa's relationship with Apple.
--:-- Host (Jessica Mendoza): And it says that Visa struck a deal with Apple, which said that Apple cannot deploy payment technology that would compete with Visa or prod any of their consumers away from Visa cards.
--:-- Guest (Angel Au-Yeung): That's huge.
--:-- Host (Jessica Mendoza): Visa is saying the only way we going to let you access to the Visa card so that you can store it in your Apple digital wallet is if you promise that you do not create technology that will compete with our card
--:-- Guest (Angel Au-Yeung): In return, according to this lawsuit, Visa said that we will share our profits with you.
--:-- Host (Jessica Mendoza): Wow. If you promise that you not innovate in this space. Hmm. Like stay away from our lane and we can be friends.
--:-- Guest (Angel Au-Yeung): Yes.
--:-- Host (Jessica Mendoza): Is what the lawsuit alleges.
--:-- Guest (Angel Au-Yeung): Exactly.
--:-- Host (Jessica Mendoza): And to add on that, there was a former Visa CFO that basically summarized the strategy with Apple with a quote, everybody is a friend and partner. Nobody is a competitor.
--:-- Guest (Angel Au-Yeung): The Justice Department says that Visa has used a similar strategy with emerging competitors too, allegedly partnering with them to stifle innovation.
--:-- Host (Jessica Mendoza): One example prosecutors point to is a deal Visa made with Square.
--:-- Guest (Angel Au-Yeung): That's the company that makes those white devices that lets people swipe credit cards on their phones.
--:-- Host (Jessica Mendoza): It's also the company behind Cash App.
--:-- Guest (Angel Au-Yeung): A little over 10 years ago, Square was in the early days of trying to build out Cash App.
--:-- Host (Jessica Mendoza): And Visa was looking at this product, and they were, according to this lawsuit, Visa was concerned that in building out Cash App, the company would go on to build its own network and rails for money to pass through.
--:-- Guest (Angel Au-Yeung): Meanwhile, Square was looking for a way to pay lower fees when users linked their debit cards to Cash App to move money.
--:-- Host (Jessica Mendoza): Visa agreed to a lower fee.
--:-- Guest (Angel Au-Yeung): But then they also said that they had the right to exit from this agreement if they found that Square was creating a product that competed with them.
--:-- Host (Jessica Mendoza): And so after signing this contract with Square in 2014, according to the lawsuit, there was a Visa executive that said, quote, we've got Square on a short leash.
--:-- Guest (Angel Au-Yeung): According to the DOJ, this contract has prevented Square from developing its own network that could compete with Visa.
--:-- Host (Jessica Mendoza): This deal was problematic because it was another example of Visa strangling the competition, basically using their position of power to compel smaller players to not innovate.
--:-- Guest (Angel Au-Yeung): Visa said the lawsuit, quote, ignores the reality that Visa is just one of many competitors in a debit space that is growing with entrants who are thriving.
--:-- Host (Jessica Mendoza): If the Justice Department wins this case, what kind of effect will it have on consumers, if any?
--:-- Guest (Angel Au-Yeung): If the Justice Department gets what it wants from Visa, there will be more competition in the cart network industry.
--:-- Host (Jessica Mendoza): And no matter how you slice it, dice it, that just means that those savings in some way, shape or form will go down to consumers.
--:-- Guest (Angel Au-Yeung): Because merchants have said that because these fees are so high, they've had to increase the prices of their goods and services on top of inflation from the last couple of years.
--:-- Host (Jessica Mendoza): So the idea is if there is more competition, it lowers fees that the businesses have to pay, then the businesses will pass on those discounts to the consumers.
--:-- Guest (Angel Au-Yeung): That's the idealistic, optimistic view of this anyway.
--:-- Host (Jessica Mendoza): In a statement, a lawyer for Visa said, quote, we are proud of the payments network we've built, the innovation we advance, and the economic opportunity we enable.
--:-- Guest (Angel Au-Yeung): So what does the future of Visa look like?
--:-- Host (Jessica Mendoza): A lot of time with lawyers.
--:-- Guest (Angel Au-Yeung): Yeah. This is going to be a prolonged battle.
--:-- Host (Jessica Mendoza): This is not the type of lawsuit that's likely going to be settled in a couple months, in a year.
--:-- Guest (Angel Au-Yeung): This is going to be years of legal battles and legal fees that Visa will have to face.
--:-- Host (Jessica Mendoza): That's all for today, Monday, September 30th.
--:-- Host (Jessica Mendoza): The Journal is a co-production of Spotify and The Wall Street Journal.
--:-- Host (Jessica Mendoza): Additional reporting in this episode by Dave Michaels.
--:-- Host (Jessica Mendoza): Thanks for listening. See you tomorrow.
