Is Visa a Monopoly?

The fight against middlemen comes to Visa

The Biden administration is readying its next big antitrust fight — and it’s against Visa, one of the pillars of the global payments system.

The Justice Department is expected to sue the company as soon as Tuesday, accusing it of illegal monopolistic practices and other unlawful behavior, DealBook’s Lauren Hirsch and The Times’s David McCabe report. It’s the latest effort by federal officials to crack down on corporate middlemen on competition grounds.

At the center of the lawsuit is payment processing technology, which connects a bank to a merchant whenever a purchase is made. The Justice Department plans to argue that Visa punishes customers, including merchants, when they try to use competing services to process payments.

Prosecutors are also expected to say that Visa coerces financial technology firms to work with it by threatening penalties on those who do not, and thus squeezing out potential new competitors. The Wall Street Journal previously reported that the Justice Department was examining incentives that Visa had given to Square, Stripe and PayPal.

The Justice Department has investigated Visa for years, which the company previously disclosed. Federal authorities conducted hundreds of interviews with parties, including retailers, grocery stores and banks, to understand Visa’s agreements with financial technology firms. Investigators looked at the negotiations, contracts and ways in which the penalties were structured.

The origins of the case date to 2020 when the Justice Department sued to block Visa’s $5.3 billion deal for the financial technology firm Plaid, arguing that the deal aimed to stamp out a young competitor. The Justice Department said Visa dominated the debit market for “years” and “protected its monopoly with exclusionary tactics.” (The companies later abandoned the transaction.)

Shares in Visa were down 2 percent in premarket trading. The company has previously defended its practices as being in compliance with the law.

Biden’s antitrust enforcers have made corporate middlemen a major focus. Jonathan Kanter, the Justice Department’s antitrust chief, has spoken about the “tyranny of the middlemen” which cut out the competition and needlessly raise prices.

The Justice Department’s cases in the lead-up to the November election have made these middlemen a prime focus. It has taken on companies including Live Nation Entertainment, the owner of Ticketmaster, and RealPage, a maker of property management software. And the F.T.C. took legal action last week against three major pharmacy benefit managers, accusing them of playing a role in inflating insulin prices.

HERE’S WHAT’S HAPPENING

Markets rise after Fed officials forecast more interest rate cuts. Stock futures were up in premarket trading on Tuesday and the S&P 500 closed at a record high on Monday, after the Fed presidents Austan Goolsbee and Neel Kashkari said they expected the central bank to lower borrowing costs further in the coming months. Goolsbee, a nonvoting member, said the inflation risk was waning, and Kashkari saw the labor market as healthy.

Boeing makes a “best and final” offer to striking union workers. The aerospace giant proposed increasing pay by a third over four years — higher than what was in a tentative contract that employees rejected this month, but less than the 40 percent raise that the union representing striking workers had sought. Boeing gave workers until Friday to accept the new deal, as it seeks to end a work stoppage that has largely stopped commercial aircraft production.

Israel continues airstrikes on Hezbollah in Lebanon after hundreds are killed. Thousands of people fled southern Lebanon as the Israeli military kept up its barrage; Monday’s attacks were its deadliest in the country in nearly two decades. The escalating violence has spurred worries that it could prompt an all-out war between Israel and Hezbollah and a wider regional conflict.

Has China done enough?

China introduced a series of stimulus measures this morning, bolstering markets in Asia and Europe, as Beijing tries to reignite the economy to hit its 5 percent annual growth target.

But will the moves be enough to solve China’s long-term economic challenges at home and abroad?

China’s central bank cut the benchmark interest rate, and lenders’ capital requirements. Officials also announced funding to help brokers, insurers and others to buy stocks, and help for the beleaguered property sector.

Analysts warn that the measures don’t address the economy’s real challenges. The stimulus does not deal with weak domestic demand, George Magnus, a research associate at Oxford University’s China Center, told DealBook.

Had the measures been “followed up by a meaningful fiscal program and a genuine boost to household demand and consumption, along with adequate capital injections to property developers and banks, China’s economy would get a more significant lift,” he said. “But few people are holding their breath.”

The move could bolster exports just as some governments are restricting China trade. The Biden administration on Monday said it would ban Chinese-developed software in internet-connected cars over national security concerns. It’s the latest effort to curtail China’s global E.V. push, after the Biden administration announced 100 percent tariffs on the sector that will take effect on Friday. (That said, there are few Chinese cars on U.S. roads.)

At the same time, Europe is divided over how to manage the influx of Chinese cars. Some, like France’s Renault, want the European Union to impose tariffs. But German brands that have invested in China over decades are doubling down on the country, and have urged the E.U. to cut import duties.

China is bracing for more turbulence after the U.S. election. Whoever wins in November, “Chinese decision makers expect bitter disputes over trade, technology and Taiwan,” Yu Jie, a China expert at Chatham House, a London-based think tank, writes in Project Syndicate.

• In other China news: Zhu Hengpeng, one of the country’s most prominent economists, was detained after apparently criticizing China’s leader, Xi Jinping, on a private chat group, The Wall Street Journal reports; and how China is trying to establish itself as center of trade in Asia.

The fight against Big Plastics

For years, environmentalists have sounded the alarm about oil and plastics giants deceiving the public with claims about single-use plastics and recycling, and called on regulators to get involved. California, for one, has listened.

The state’s attorney general, Rob Bonta, sued Exxon Mobil on Monday — during Climate Week NYC — accusing it of carrying out a “decades-long campaign of deception” about recycling that worsened a plastic pollution crisis.

What California is claiming: Exxon Mobil said that its “advanced recycling” program turned used plastics into new products. But most of the waste collected via the initiative was turned into fuel, and new products tied to the campaign contained little recycled material, but were marketed as such and sold at a premium, according to the lawsuit.

Only about 5 percent of plastic waste in the United States is recycled, Bonta’s office said, citing an estimate by a plastics watchdog. That makes corporate recycling claims — including the practice of stamping the “chasing arrows” symbol on the plastic products — open to scrutiny.

The fight against oil giants is beginning to echo the battle with Big Tobacco. More than two dozen state and local governments have sued oil companies over accusations about their role in the planet’s climate plight.

Bonta told The Times that he was seeking “multiple billions of dollars” in damages, arguing that Exxon Mobil broke a wide range of California laws, including false advertising, unfair competition and violating pollution statutes.

Exxon Mobil says California is just as much to blame. “Instead of suing us, they could have worked with us to fix the problem and keep plastic out of landfills,” the company said in a statement.

The Biden administration has vowed to end plastic pollution, saying that it is “disproportionately impacting communities with environmental justice concerns, contributing to loss of biodiversity, and exacerbating the impacts of climate change.”

The federal government, a major buyer of consumer goods, plans to phase out the purchases of single-use plastics.

But things could change in a potential second Trump administration. The former president, who has courted industry lobbyists for a $1 billion donation campaign donation in exchange for rolling back environmental regulations, has long played down the risks of climate change.

“I am just notifying John Deere right now: If you do that, we are putting a 200 percent tariff on everything that you want to sell into the United States.”

— Donald Trump, at a campaign stop in Pennsylvania on Monday, responding to its plans to move some production to Mexico. Mark Cuban, the billionaire entrepreneur and a vocal Trump critic, said such a move would be a “good way to destroy a legendary American company and increase costs to American buyers.”

Wall Street’s A.I. pessimist

Goldman Sachs has been both the voice of optimism and caution about the artificial intelligence boom that has helped fuel a bull market rally, and minted a new class of tech billionaires and unicorn start-ups.

The bank’s economists have predicted that A.I. could turbocharge economic growth. And then there’s Jim Covello, Goldman Sachs’s head of stock research. A veteran of the dot-com crash, Covello has become Wall Street’s leading A.I. skeptic, writes The Times’s Tripp Mickle.

Three months ago, he jolted markets with a research paper that challenged whether businesses would see a sufficient return on what by some estimates could be $1 trillion in A.I. spending in the coming years. He said generative artificial intelligence, which can summarize text and write software code, made so many mistakes that it was questionable whether it would ever reliably solve complex problems.

The Goldman paper landed days after a partner at Sequoia Capital, a venture firm, raised similar questions in a blog post about A.I. Their skepticism marked a turning point for A.I.-related stocks, leading to a reassessment of Wall Street’s hottest trade.

Covello has been challenged by his colleagues. George Lee, the co-head of Goldman’s geopolitical advisory business, said it was way too early to fully assess the technology’s potential. In a debate that Goldman hosted between the two, Lee cited research that found that A.I. delivered big productivity gains for developers. “People are picking up dimes of productivity savings,” he told The Times.

• In other A.I. news: The race is on to build new A.I. systems that never hallucinate. Their focus is on mathematics.

THE SPEED READ

Deals

• Liberty Broadband proposed an all-stock merger with Charter Communications, in what would be another complicated combination of companies controlled by the billionaire John Malone. (Bloomberg)

• The F.T.C. is reportedly poised to approve Chevron’s $53 billion takeover of Hess, its smaller rival. (Reuters)

Elections, politics and policy

• “White House climate adviser says Biden’s green spending is secure” (Politico)

• The founder of Telegram, Pavel Durov, reportedly ignored warnings by some of the messaging app’s users to overhaul its content policies years before his arrest in France. (WSJ)

Best of the rest

• Why companies aren’t rushing to do layoffs these days. (Axios)

• The arrest of Sean Combs has activists and survivors of sexual abuse hoping that the music industry’s #MeToo moment has arrived. (NYT)

• Jill Biden, the first lady, introduced a government spending plan to address health inequality issues, including a $500 million annual fund to study women’s health. (UPI)

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