Visa, the payment giant, is facing renewed scrutiny from the US Department of Justice (DOJ) over its pricing practices for its proprietary "tokenization" technology. The DOJ has begun investigating Visa's policies of charging merchants more if they do not use the company's tokenization technology, according to sources familiar with the matter. Tokenization is a service that replaces sensitive card numbers with tokens that can only be used with a specific device or merchant, enhancing payment security.
This development comes in the midst of an ongoing antitrust probe into Visa's practices, which the DOJ initiated more than two years ago. The agency has recently issued civil investigative demands related to potential violations of the Sherman Antitrust Act, the US law aimed at preventing monopolies. Visa's rival, Mastercard, also faced scrutiny over its tokenization practices and settled the case with the DOJ a few months ago.
Visa introduced tokenization technology in 2014, and it has been widely adopted by more than 13,000 merchants, including major companies like Netflix, Microsoft, and Fitbit. The company has always incentivized merchants to use tokenization by offering lower prices for transactions utilizing the service. Visa aims to encourage the tokenization of cardholder information due to the significantly enhanced security it provides.
Recent changes in Visa's pricing for tokenized payments compared to non-tokenized payments have attracted the DOJ's attention. According to documents seen by Bloomberg News, starting in April, merchants that impose recurring charges, such as streaming services and cable TV providers, will pay $1.38 in card fees for every $100 in purchases processed with traditional Visa cards, whereas the price drops to $1.28 if they use Visa's tokenization technology. While these differences may seem minor per transaction, they can add up significantly, as merchants spent a record $160.7 billion on swipe fees last year.
Visa's tokenization practices have also drawn attention from other regulatory bodies. In December, the Federal Trade Commission (FTC) reached a settlement with Mastercard to address allegations that the company used its tokenization technology to block merchants from using alternative payment networks. Visa claims to have always allowed access to alternative networks, according to an insider.
The DOJ's investigation into Visa primarily focuses on whether the company has monopolized the debit-card market, and it predates the antitrust probe. The DOJ raised concerns about Visa's acquisition of Plaid Inc., a fintech provider, which Visa ultimately abandoned due to the agency's lawsuit blocking the deal. The DOJ believes that Visa was using its tokenization service as a technological barrier to limit competition in online debit-card transactions.
Visa has been cooperating with the investigation and has stated its commitment to compliance with regulatory requirements. The outcome of the inquiry and any potential consequences for Visa's tokenization practices remain to be seen.