Visa Faces Fresh Probe Over Its Tokenization Technology
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Visa is facing a fresh investigation by the US Department of Justice (DoJ). The agency is accusing the payments company of charging retailers additional fees over not using the proprietary tokenization technology the payments firm offers.
DoJ starts probe against Visa
The fresh probe against Visa was reported by Bloomberg. The antitrust unit at the DoJ started its investigations against Visa in early 2021. The investigation investigates whether Visa used anticompetitive tactics within the debit card market.
The tokenization technology that is under investigation in this matter was released by Visa in 2014. The technology is used to swap debit card numbers with tokens that can later be used on a specific device or with a merchant. The technology replaces the sensitive account information of users with a unique digital identifier.
Visa charges merchants a lower fee if they use this service. The Bloomberg report said that from April, the companies that opt for recurring payments have to pay $1.38 in card fees for $100 worth of purchases using the traditional Visa card. However, if the same merchants opt to use the tokenization technology, they must pay only $1.28.
The fresh probe comes after the US Federal Trade Commission started investigations against Visa. The investigations examined whether the security tokens offered by Visa and Mastercard restrict debit-card routing in online payments.
The FTC also ordered Mastercard to share customer account details with competing networks to help them process payment orders. In April, Mastercard also revealed that the DoJ had requested additional information.
Last month, Visa revealed that the antitrust division at the DoJ had demanded additional documents on May 2. Visa also said that the DoJ demanded information on the debit card practices in the US and how the country competed against other payment networks.
Moreover, the Bloomberg report said that Visa plans to implement the regular fee adjustment schedule. According to insider sources, the planned upcoming changes might have renewed the DoJ’s interest in the tokenization technology policy offered by Visa.
Visa and Mastercard face regulatory scrutiny in the US
Visa and Mastercard are not only facing regulatory scrutiny in the US but also in the UK. In 2022, the two companies came under the radar of the Payment Systems Regulator (PRS), the regulatory agency for the UK’s payments sector. The two companies command a 99% market share of the country’s debit and credit payments industry.
The regulator solicited several market reviews on the increasing credit card fees charged by the two firms. It said that cards had become a popular way for customers to make payments. As such, merchants must pay certain fees to accept card payments, which might affect how people pay for goods and services.
At the time, the regulator also wanted to understand whether card payments were working as intended. It was also paramount to ensure that merchants and consumers secured good deals.
