Visa Worldwide's Business Enhancement Strategy Given Approval by the Japan Fair Trade Commission
JFTC Takes Administrative Action Against Visa Worldwide for Antitrust Violations
In a landmark decision, the Japan Fair Trade Commission (JFTC) has identified an antitrust violation by Visa Worldwide Pte Ltd, a Singapore-based firm that operates Visa card operations in Japan and other parts of the Asia-Pacific region. The violation involves Visa's monopolistic practices in its credit card authorization system market.
The JFTC found that Visa's November 2021 contract terms changes effectively forced credit card companies managing merchant outlets to adopt Visa’s proprietary authorization system. This was achieved by making them ineligible for commission discounts if they used competing systems. This practice restricted fair competition, making it economically disadvantageous for companies to use rival authorization systems, leading nearly all of them to switch to Visa’s platform after the policy was announced in 2018.
The authorization system at issue is integral to credit card transactions, as it verifies consumer spending limits and detects potential fraud in real time with issuing banks. Visa’s policy change, therefore, leveraged its dominant position to limit competitors’ access and maintain control of this part of the payment processing infrastructure. This conduct was found to violate Japan's Anti-Monopoly Law.
As a result, Visa Worldwide voluntarily submitted a corrective action plan that the JFTC approved. Visa must report the progress of implementing these changes to regulators for five years under the commitment procedure, marking Japan's first-ever administrative antitrust action against a credit card company.
The JFTC's investigation and approval of Visa Worldwide's business improvement plan pertain to Japan. The JFTC conducted an on-site inspection of Visa Worldwide's Japanese operation in July last year. The JFTC concluded that swiftly executing proposed measures by Visa Worldwide would restore the competitive environment. The JFTC decided to refrain from imposing a severer sanction on Visa Worldwide.
The JFTC believes that Visa Worldwide's practice amounts to a transaction with a restraint condition prohibited by the law. This conclusion was made under the so-called commitment procedures, a process by the JFTC to resolve antitrust issues. In credit card transactions, sales data are transmitted from acquirers to card issuers through settlement service networks. Some acquirers have actually taken advantage of the preferential rates offered by Visa Worldwide. However, an acquirer should pay a certain rate of fees to an issuer unless they are the same entities.
The JFTC's press release regarding this matter was issued on July 23, 2022. Visa Worldwide notified acquirers in February 2018 of a plan to apply preferential rates to fees only when they exclusively use the Visa Worldwide network. Visa Worldwide implemented the preferential rate plan in November 2021. The JFTC took an administrative step against an international credit card brand for the first time ever.
[1] JFTC Press Release, July 23, 2022. [2] JFTC Press Release, July 23, 2022. [4] JFTC Press Release, July 23, 2022.
- The JFTC's decision to take administrative action against Visa Worldwide has highlighted the importance of maintaining fair competition in the financial industry, specifically in the credit card authorization system market.
- Visa's policy change in November 2021, requiring credit card companies to use their proprietary authorization system, has been found to have negative implications for the environment of business competition, potentially stifling innovation in the arts and technology industry.
- As a result of the JFTC's findings, Visa Worldwide's business practices will now be closely monitored for the next five years, which could have significant repercussions for the broader business landscape of Japan, potentially influencing the stability of the country's economy and finance sector.
