The United States Department of Justice has launched a new investigation into Visa’s tokenization technology pricing methods.
Specifically, Visa is under renewed scrutiny from the US Department of Justice (DOJ) regarding its merchant fee policies for proprietary cardholder data protection technology. As part of an ongoing investigation by the DOJ, officials are examining Visa's practice of charging merchants higher fees if they opt not to use the company's exclusive 'tokenization' technology. Tokenization involves replacing sensitive card data with tokens that have limited usability, enhancing payment security.
These inquiries come over two years after the DOJ initially informed Visa of an antitrust investigation and several months after Mastercard settled a similar case involving its tokenization methods. The DOJ has been active this year in issuing civil investigative demands related to potential Sherman Antitrust Act violations, a key law against monopolistic practices.
Tokenization was introduced by Visa in 2014. The technology replaces the 16-digit account number with a unique token, accessible only by Visa, safeguarding cardholder information during transmission between retailers and banks. According to Bloomberg, over 4 billion tokens have been issued by Visa since its inception, with more than 13,000 merchants, including Netflix, Microsoft, and Alphabet's Fitbit, adopting the technology.
Visa has offered merchants lower fees for using tokenization, aiming to encourage wider adoption due to its heightened security features. In addition to enhancing security, tokenization can reduce friction in the payment process by enabling financial institutions to automatically update expired or compromised payment credentials without any manual updates made by the customer in the event that their Visa card is lost, stolen, or expired, according to Visa's website.
Recent adjustments to fees by Visa and its partners shared with merchants via a document seen by Bloomberg have attracted the DOJ's renewed interest in tokenization. The adjustments involve different rates for tokenized versus non-tokenized payments. For instance, for recurring charges such as those from streaming services, starting in April, the largest of these merchants will pay USD 1.38 in card fees per USD 100 for traditional Visa credit card transactions. This fee drops to USD 1.28 with the use of Visa's tokenization technology.
Visa's competitors have also faced scrutiny over tokenization. In December, the Federal Trade Commission reached a settlement with Mastercard over allegations that it used tokenization to block merchants from alternate payment networks.
The DOJ's investigation into Visa has centred on potential antitrust violations in the debit card market. This focus predates the recent scrutiny and was further highlighted when Visa attempted to acquire Plaid in 2020, a deal it abandoned due to DOJ opposition.
The DOJ labelled Visa's tokenization service a 'technological barrier' limiting competition in online debit transactions. The department subsequently initiated a separate investigation, issuing civil investigative demands for related documents and information. According to Bloomberg, Visa has cooperated with this investigation and the agency's subsequent requests for information this year.
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