The big news on Wall Street today revolves around payment juggernaut Visa (NYSE:V). Today, the U.S. Justice Department launched a probe into Visa’s business practices, and whether these have allowed Visa a dominant market position in an illegal manner, or one which isn’t in the best interest of the public. This Visa DOJ news has shocked the market. Accordingly, shares of Visa stock are down approximately 5% at the time of writing.
The probe focuses on questions around whether financial technology (fintech) firms have the ability to be real competitors to Visa and Mastercard (NYSE:MA). Additionally, continuing questions in the debit-card marketplace have driven a further investigation.
In November, Visa was sued by the DOJ over its proposed acquisition of fintech firm Plaid. The deal would have given Visa a virtual monopoly in the online debit space, according to DOJ prosecutors. Plaid’s service was viewed by the DOJ as a cheaper, innovative alternative that had the potential to become a threat to Visa. Visa dismissed these allegations, though the company did drop the deal following the suit.
The DOJ is also looking into how debit-card transactions are routed. Smaller networks such as Shazam or NYCE are available as options to merchants. However, claims that merchants have had difficulty routing transactions through competing networks has led to what are believed to be higher network fees. Additionally, the probe is looking at financial incentives that Visa provides to banks issuing cards on its network. Whether such incentives encourage routing of transactions on Visa’s network as opposed to its competitors remains to be seen.
What This Visa DOJ News Means for Investors
Visa’s dominant market position is one of the key reasons investors hold this stock.
Indeed, it appears the challenges the DOJ has proposed could provide a headwind for Visa investors. However, these concerns have been brought up in the past, and little has materialized. Investors will therefore be making an assessment as to the real level of risk present with this probe.
In my view, Visa’s a world-class company with staying power. Certainly, investors should weigh this risk today. However, as with other companies in dominant monopoly-like market positions, a buy-the-dip mentality has generally proven to be prudent.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
