Give the Biden Administration credit. In its final months, it has led a blitz of aggressive consumer protection actions. Much of the action came from the already hard-charging Antitrust Division of the Department of Justice (DOJ), the Federal Trade Commission (FTC), as well as the Consumer Financial Protection Bureau (CFPB).
The Financial Times reported that President Biden’s Antitrust Division chief, Jonathan Kanter, who stepped down on December 20, “shook the establishment by rejecting the notion that corporate growth be tolerated so long as consumers were not harmed—a shift from the ‘consumer welfare’ standard.”
Two recent actions highlight the fine line the government attempts to walk by alleging that debit and peer to peer payment networks are simultaneously competing too aggressively and acting monopolistically.
On December 20, the CFPB announced that it had sued Early Warning Service, the operator of Zelle, along with owner banks Bank of America, JPMorgan Chase, and Wells Fargo, “for failing to protect consumers from widespread fraud on America’s most widely available peer to peer payment network.” “The nation’s largest banks felt threatened by competing payment apps, so they rushed to put out Zelle,” said CFPB Director Rohit Chopra.
In September, the Justice Department sued Visa for allegedly monopolizing debit markets. In a press release, the government claimed that “Visa illegally maintains a monopoly over debit network markets by using its dominance to thwart the growth of its existing competitors and prevent others from developing new and innovative alternatives.”
Yet, as the government acknowledges in the case against Zelle, there’s already a highly competitive and innovative marketplace for how people access and move money electronically.
As in any functioning market, competitors distinguish themselves by offering different price-points and a range of features that consumers value differently. Many consumers choose multiple different ways to make payments, depending on the transaction type. A debit card transaction through Visa or one of its direct competitors might be best for one seeking the most secure transaction, or the more economical Venmo might be appropriate for reimbursing a friend who picked up your groceries.
This diversity of choices serves consumers well, as is evidenced by how robust, fiercely competitive, and innovative this space is.
In order for the Biden Administration to see Visa’s strong market position as anti-competitive, it must have a very narrow and static view of the market. It must believe that peer to peer payment systems and Visa’s debit business don’t compete with each other. This, of course, should not surprise anyone following the administration’s aggressive Sherman Act enforcement actions against Ticketmaster, Apple, and Realpage, among others.
Consider DOJ's claim that Visa illegally offers incentives to would-be competitors to become partners in debit card transactions. Such deals aren’t necessarily anticompetitive, and they often serve consumers well.
How do we distinguish between illegal anticompetitive behavior and a good business practice? Under the consumer welfare standard, which has been the dominant antitrust theory for four decades, when an activity does not prevent consumers from having access to a competitive marketplace that offers them a range of choices, the activity does not violate the Sherman Act.
Yet at the core of the Biden Administration’s antitrust overhaul is a belief that a functioning, innovative, and competitive marketplace that offers consumers a range of price points and features is no defense to allegations of monopolistic behavior. It seems that, without the consumer welfare standard, when consumers, in the aggregate, spend billions of dollars on a product or service from a successful big business, it must only be because the business has engaged in an illegal anti-competitive practice.
But while the government alleges that Visa operates a monopoly, the government also openly admits in the Zelle case that the largest banks feel “threatened” by competing innovative services, including Venmo and PayPal.
The only way to resolve this apparent contradiction would be for the government to classify money-moving technologies so narrowly that debit cards and peer to peer payment systems don’t actually compete against each other. Yet consumers themselves don’t see it that way. The differences between debit cards and peer to peer payment services, which consumers often use interchangeably, go to the heart of the allegations in each of the cases.
Debit cards such as those on the Visa network tend to offer gold-standard fraud protection. For consumers who choose to use them, that security comes at a cost to Visa, which it passes on to consumers who pay the fees that the DOJ finds so offensive.
Debit cards’ newest class of competitor, peer to peer payment systems, have beefed up their security since the early days of CashApp, Venmo, and PayPal, but they haven’t yet established the consumer confidence earned by Visa.
Think of different payment services and systems like different brands and models of cars. Consumers reasonably see a Volvo SUV as safer than a Honda hatchback, and DOJ shouldn’t attribute the higher price of a Volvo to anti-competitive behavior. And the CFPB need not assume that the lower safety profile of a Honda means that the company is so threatened by competition that it recklessly sells unsafe vehicles.
Will the incoming Trump administration continue the Biden administration’s aggressive consumer protection and antitrust agenda?
On December 4, President-Elect Trump, who promised during the campaign to continue the crackdown on Big Tech, named antitrust hawk Gail Slater to head up the Antitrust Division. The New York Times reported that “It is unclear” whether Ms. Slater “would continue the Biden Administration’s aggressive approach to antitrust in other sectors.”
It is possible that pressure from Republicans to revert to the consumer welfare standard will contain Ms. Slater’s aggressive focus to Big Tech. If not, the consumer welfare standard may become a relic. Much is at stake.
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