MasterCard Reports U.S. Antitrust Investigation of Debit Practices

The US Department of Justice announced Monday that it is investigating Mastercard Inc. to determine whether the company is engaging in anticompetitive behavior in its debit-card business, signaling the agency has widened the scope of a probe that previously centered on rival Visa Inc.

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Mastercard announced that it received a civil investigative demand from the department at the end of last month seeking information regarding a possible violation of certain sections of the Sherman Act, a law aimed at protecting consumers from unfair competition. As stated in a quarterly filing with the Securities and Exchange Commission, the company is cooperating with the investigation, which focuses on its debit program for US consumers and its competition with other networks and technologies. 

Approximately two years ago, the Justice Department began an investigation into Visa's practices as part of a similar effort to get to the bottom of the issue. A civil investigation was launched in January by the agency's antitrust division, which sought more documents and information related to the investigation. Visa has stated that it is cooperating with this investigation.

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"There is no surprise that the DOJ would request information from other players in the debit space," said Mastercard's Chief Financial Officer Sachin Mehra in an interview. "There is no way to predict what will happen, but you can expect these types of investigations to take a number of years to complete."

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After the Justice Department sued Visa over its planned purchase of Plaid Inc. for $5.3 billion, the department began investigating Visa's debit practices. In its argument at the time, the department argued that the combination of the two companies would further limit competition in the market for the online debit-card transaction market. Ultimately, the deal was abandoned by the two companies.

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As far as the Justice Department's inquiry is concerned, it traces its roots back to a 2010 law known as the Durbin Amendment, which obliged banks to include two competing networks as part of their debit card offering. 

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A merchant is supposed to be given a choice: he or she can choose to route transactions over a major network like Visa or Mastercard, or he or she can choose to route them over a smaller alternative. There are a number of network companies that can be cheaper for merchants, such as Pulse, Star, and NYCE.

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However, merchants have complained in recent years that they have had issues using alternative networks for making online purchases. Due to this consumer backlash, the Federal Reserve in October agreed to rewrite its rules governing debit-card transactions, ordering banks to ensure that they have at least two payment networks available to process all debit-card transactions, including those made digitally.