The US Department of Justice (DOJ) is looking into Visa and its tokenization technology after a lengthy investigation believes the card giant is not protecting cardholder information.
The DOJ became alerted to Visa’s proprietary tokenization technology – which allows users to switch card numbers with tokens that can be used to make purchases with no personal information attached – after it was alleged the company is charging retailers more if they do not use the service.
Despite Visa imploring its users to use the tokenization service as a way to enhance their privacy and security, the DOJ’s investigation inferred that the card network is attempting to monopolise the token market by offering it to merchants at a lower price.
This would then fall under a violation of the US’ Sherman Antitrust Act, designed to mitigate and prevent monopolies over markets.
The antitrust probe stems from Visa and its partners making amendments to some of its rates which peaked the DOJ’s interest, particularly in its tokenization service.
The DOJ’s interest was in the comparable prices of tokenized and non-tokenized and recurring charges which from April, Visa began to charge $1.38 for every $100 purchase, whereas charges dropped $1.28 for the same purchase price if a merchant uses the tokenization technology.
Whilst the charge differential may be minimal, Bloomberg notes these prices add up. The news outlet revealed that according to a Nilson report, merchants spent a record $160.7bn on charge fees, a 17% increase from 2021.
The DOJ has now stepped up its investigation to query whether Visa has made moves to monopolise the debit card market with possible violations of the Sherman Antitrust Act.
In 2020, the DOJ blocked Visa’s acquisition of financial service Plaid as the US agency argued the takeover would limit competitors from offering similar tokenization services as an acquisition of Plaid would significantly bolster its services.
Visa later informed the department it would open a separate investigation which resulted in the DOJ opening a civil investigative request for the card giant to hand over related documents over its debit card practices.
Whilst the DOJ is seeking additional information on Visa’s tokenization practices, the company has stated it has been cooperating on the matter.