Finance

BNP Paribas Chief Financial Officer Lars Machenil on Thursday voiced his support for greater integration in Europe’s banking sector.
His comments come as Italy’s UniCredit ups the ante on its apparent takeover attempt of Germany’s Commerzbank, while Spain’s BBVA continues to actively pursue its domestic rival, Banco Sabadell.
“If I would ask you, how many banks are there in Europe, your right answer would be too many,” Machenil said.

A sign on the exterior of a BNP Paribas SA bank branch in Paris, France, on Friday, Aug. 2, 2024.
Bloomberg | Bloomberg | Getty Images

France’s BNP Paribas on Thursday said there are simply too many European lenders for the region to be able to compete with rivals from the U.S. and Asia, calling for the creation of more homegrown heavyweight banking champions.
Speaking to CNBC’s Charlotte Reed at the Bank of America Financials CEO Conference, BNP Paribas Chief Financial Officer Lars Machenil voiced his support for greater integration in Europe’s banking sector.

His comments come as Italy’s UniCredit ups the ante on its apparent takeover attempt of Germany’s Commerzbank, while Spain’s BBVA continues to actively pursue its domestic rival, Banco Sabadell.
“If I would ask you, how many banks are there in Europe, your right answer would be too many,” Machenil said.
“If we are very fragmented in activity, therefore the competition is not the same thing as what you might see in other regions. So … you basically should get that consolidation and get that going,” he added.

Milan-based UniCredit has ratcheted up the pressure on Frankfurt-based Commerzbank in recent weeks as it seeks to become the biggest investor in Germany’s second-largest lender with a 21% stake.
UniCredit, which took a 9% stake in Commerzbank earlier this month, appears to have caught German authorities off guard with the potential multibillion-euro merger.

German Chancellor Olaf Scholz, who has previously called for greater integration in Europe’s banking sector, is firmly opposed to the apparent takeover attempt. Scholz has reportedly described UniCredit’s move as an “unfriendly” and “hostile” attack.
Germany’s position on UniCredit’s swoop has prompted some to accuse Berlin of favoring European banking integration only on its own terms.

Domestic consolidation

BNP Paribas’s Machenil said that while domestic consolidation would help to stabilize uncertainty in Europe’s banking environment, cross-border integration was “still a bit further away,” citing differing systems and products.
Asked whether this meant he believed cross-border banking mergers in Europe appeared to something of a farfetched reality, Machenil replied: “It’s two different things.”
“I think the ones which are in a nation, economically, they make sense, and they should, economically, happen,” he continued. “When you look at really cross border. So, a bank that is based in one country only and based in another country only, that economically doesn’t make sense because there are no synergies.”
Earlier in the year, Spanish bank BBVA shocked markets when it launched an all-share takeover offer for domestic rival Banco Sabadell.
The head of Banco Sabadell said earlier this month that it is highly unlikely BBVA will succeed with its multi-billion-euro hostile bid, Reuters reported. And yet, BBVA CEO Onur Genç told CNBC on Wednesday that the takeover was “moving according to plan.”
Spanish authorities, which have the power to block any merger or acquisition of a bank, have voiced their opposition to BBVA’s hostile takeover bid, citing potentially harmful effects on the county’s financial system. More

Klarna said Thursday that it had entered into an agreement with Adyen to add its buy now, pay later (BNPL) products to physical payment terminals.
Klarna will be included as an option across more than 450,000 Adyen payment terminals in brick-and-mortar locations as a result of the deal.
BNPL is mostly associated with online shopping, however, firms in the space are seeking to target consumers in-store, too, as they expand.

“Buy-now, pay-later” firm Klarna aims to return to profit by summer 2023.
Jakub Porzycki | NurPhoto | Getty Images

Swedish firm Klarna is partnering up with Dutch payments fintech Adyen to bring its popular buy now, pay later service into physical retail stores.
The company said Thursday that it had entered into an agreement with Adyen to add its payments products as an option at physical payment machines used by the Amsterdam-based fintech’s merchant partners.

Klarna will be included as an option across more than 450,000 Adyen payment terminals in brick-and-mortar locations as a result of the deal, according to the companies. The partnership will initially launch in Europe, North America and Australia with a wider rollout planned later down the line.
Klarna’s buy now, pay later, or BNPL, service allows users to spread the cost of their purchases over a period of interest-free installments. The service is mostly associated with online shopping, which currently accounts for about 5% of the global e-commerce market, according to Klarna.

Targeting consumers in-store has become an increasingly important priority as Klarna and other firms in the sector such as Block’s Afterpay, Affirm, Zip, Sezzle, and Zilch seek to expand their reach.
The move expands on a previous arrangement Klarna had in place with Adyen on e-commerce payments.
“We want consumers to be able to pay with Klarna at any checkout, anywhere,” David Sykes, chief commercial officer at Klarna, said in a statement Thursday.

“Our strong partnership with Adyen gives a massive boost to our ambition to bring flexible payments to the high street in a new way.”
Adyen’s head of EMEA, Alexa von Bismarck, said the deal was about giving consumers flexibility at checkout, adding that “consumers care deeply about the in-store touch point and value brands which can allow them to pay how they want.”
Earlier this year, Klarna sold Klarna Checkout, the company’s online checkout solution for merchants. This saw the firm compete less directly with payment gateways including the likes of Adyen, Stripe, and Checkout.com.

Klarna’s deal with Adyen comes as the Swedish tech giant is exploring a much-anticipated initial public offering.
Klarna hasn’t yet set a fixed timeline on when it expects to go public, however the firm’s CEO Sebastian Siemiatkowski told CNBC earlier this year that a 2024 IPO for the business wouldn’t be “impossible.”
In August, Klarna began rolling out a checking account-like product, called Klarna balance, as well as cashback rewards in a bid to convince consumers to move more of their financial lives over to its platform.
BNPL has faced criticisms from consumer rights campaigners, however, over fears it promotes the idea of consumers spending more than they can afford. Regulators are pushing for rules to bring the nascent — but fast-growing — payment method into regulation.
The recently elected U.K. Labour government is expected to set out plans for buy now, pay later regulation soon.
City Minister Tulip Siddiq said in July that the government would establish new proposals “shortly” after multiples delays to the previous Conservative government’s regulation plans for BNPL. More

European banking’s latest takeover battle is widely regarded as a potential turning point for the region — particularly the bloc’s incomplete banking union
Italy’s UniCredit has ratcheted up the pressure on Frankfurt-based Commerzbank in recent weeks as it seeks to become the biggest investor in Germany’s second-largest lender with a 21% stake.
The Milan-based bank, which took a 9% stake in Commerzbank earlier this month, appears to have caught German authorities off guard.

A man shelters from the rain under an umbrella as he walks past the Euro currency sign in front of the former European Central Bank (ECB) building in Frankfurt am Main, western Germany.
Kirill Kudryavtsev | Afp | Getty Images

European banking’s latest takeover battle is widely regarded as a potential turning point for the region — particularly the bloc’s incomplete banking union.
Italy’s UniCredit has ratcheted up the pressure on Frankfurt-based Commerzbank in recent weeks as it seeks to become the biggest investor in Germany’s second-largest lender with a 21% stake.

The Milan-based bank, which took a 9% stake in Commerzbank earlier this month, appears to have caught German authorities off guard with the potential multibillion-euro merger.
“The long-discussed move by UniCredit, Italy’s number one bank, to seek control of Germany’s Commerzbank is a watershed for Germany and Europe,” David Marsh, chairman of London-based OMFIF, an organization that tracks central banking and economic policy, said Tuesday in a written commentary.
Whatever the outcome of UniCredit’s swoop on Commerzbank, Marsh said the episode marks “another huge test” for German Chancellor Olaf Scholz.

The embattled German leader is firmly opposed to the apparent takeover attempt and has reportedly described UniCredit’s move as an “unfriendly” and “hostile” attack.
“The dispute between Germany and Italy over UniCredit’s takeover manoeuvres – branded by Scholz an unfriendly act – threatens to inflame relations between two of the Big Three member states of the European Union,” Marsh said.

“A compromise could still be found,” he continued. “But the hostility developing in Italy and Germany could scupper any meaningful steps towards completing banking union and capital markets integration, which all sides say is necessary to drag Europe out of its malaise.”

What is Europe’s banking union?

Designed in the wake of the 2008 global financial crisis, the European Union’s executive arm in 2012 announced plans to create a banking union to make sure that lenders across the region were stronger and better supervised.
The project, which became a reality in 2014 when the European Central Bank assumed its role as a banking supervisor, is widely considered to be incomplete. For instance, the lack of a European deposit insurance scheme (EDIS) is one of a number of factors that has been cited as a barrier to progress.
European leaders, including Germany’s Scholz, have repeatedly called for greater integration in Europe’s banking sector.
OMFIF’s Marsh said Germany’s opposition to UniCredit’s move on Commerzbank means Berlin “now stands accused of favouring European banking integration only on its own terms.”
A spokesperson for Germany’s government did not immediately respond when contacted by CNBC for comment.

The logo of German bank Commerzbank seen on a branch office near The Commerzbank Tower in Frankfurt.
Daniel Roland | Afp | Getty Images

Hostile takeover bids are not common in the European banking sector, although Spanish bank BBVA shocked markets in May when it launched an all-share takeover offer for domestic rival Banco Sabadell.
The head of Banco Sabadell said earlier this month that it is highly unlikely BBVA will succeed with its multi-billion-euro hostile bid, Reuters reported. And yet, BBVA CEO Onur Genç told CNBC on Wednesday that the takeover was “moving according to plan.”
Spanish authorities, which have the power to block any merger or acquisition of a bank, have voiced their opposition to BBVA’s hostile takeover bid, citing potentially harmful effects on the county’s financial system.
Mario Centeno, a member of the European Central Bank’s Governing Council, told CNBC’s “Street Signs Europe” on Tuesday that European policymakers have been working for more than a decade to establish a “true banking union” — and continue to do so.
The unfinished project means that the intervention framework for banking crises continues to be “an awkward mix” of national and EU authorities and instruments, according to Brussels-based think tank Bruegel.

Asked whether comments opposing banking consolidation from leading politicians in both Germany and Spain were a source of frustration, the ECB’s Centeno replied, “We have been working very hard in Europe to bring [the] banking union to completion. There are still some issues on the table, that we all know.”

What happens next?

Thomas Schweppe, founder of Frankfurt-based advisory firm 7Square and a former Goldman mergers and acquisitions banker, said Germany’s decision — intentional or otherwise — to sell a small 4.5% stake to UniCredit earlier this month meant the bank was now “in play” for a potential takeover.
“I think we are, you know, proposing a European banking landscape and also in Germany, they are a proponent of strong European banks that have a good capital base and are managed well,” Schweppe told CNBC’s “Squawk Box Europe” on Wednesday.
“If we mean this seriously, I think we need to accept that European consolidation also means that a German bank becomes the acquired party,” he added.
Asked for a timeline on how long the UniCredit-Commerzbank saga was likely to drag on, Schweppe said it could run for months, “if not a year or more.” He cited a lengthy regulatory process and the need for talks between all stakeholders to find a “palatable” solution. More

The U.S. Securities and Exchange Commission charged Harvest Volatility Management and Merrill Lynch on Wednesday for exceeding clients’ predesignated investment limits over a two-year period.
The two companies settled separately and will pay a combined $9.3 million to resolve the claims.
The SEC found Harvest exposed investors to greater financial risks and Merrill connected clients to Harvest while aware that accounts were exceeding designated limits.

A logo for financial service company Merrill Lynch is seen in New York.
Emmanuel Dunand | Afp | Getty Images

The U.S. Securities and Exchange Commission charged Harvest Volatility Management and Merrill Lynch on Wednesday for exceeding clients’ predesignated investment limits over a two-year period.
Merrill, owned by Bank of America, and Harvest have agreed in separate settlements to pay a combined $9.3 million in penalties to resolve the claims.

Harvest was the primary investment advisor and portfolio manager for the Collateral Yield Enhancement Strategy, which traded options in a volatility index aimed at incremental returns. Beginning in 2016, Harvest allowed a plethora of accounts to exceed the exposure levels that investors had already designated when they signed up for the enhancement strategy, with dozens passing the limit by 50% or more, according to the SEC’s orders.
The SEC said Merrill connected its clients to Harvest while it knew that investors’ accounts were exceeding the set exposure levels under Harvest’s management. Merrill also received a cut of Harvest’s trading commissions and management and incentive fees, according to the agency.
Both Merrill and Harvest received larger management fees while investors were exposed to greater financial risks, the SEC said. Both companies were found to neglect policies and procedures that could have been adopted to alert investors of exposure exceeding the designated limits.
“In this case, two investment advisers allegedly sold a complex options trading strategy to their clients, but failed to abide by basic client instructions or implement and adhere to appropriate policies and procedures,” said Mark Cave, associate director of the SEC’s enforcement division. “Today’s action holds Merrill and Harvest accountable for dropping the ball in executing these basic duties to their clients, even as their clients’ financial exposure grew well beyond predetermined limits.”
A representative from Bank of America said the company “ended all new enrollments with Harvest in 2019 and recommended that existing clients unwind their positions.”

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China’s slowing economy needs more than interest rate cuts to boost growth, analysts said.
“We will need a major fiscal policy support to see higher CNY government bond yields,” said Edmund Goh, head of China fixed income at abrdn.
There’s still a 1 trillion yuan shortfall in spending if Beijing is to meet its fiscal target for the year, according to an analysis by CF40, a major Chinese think tank focusing on finance and macroeconomic policy.

A China Resources property under construction in Nanjing, Jiangsu province, China, Sept 24, 2024. 
Cfoto | Future Publishing | Getty Images

BEIJING — China’s slowing economy needs more than interest rate cuts to boost growth, analysts said.
The People’s Bank of China on Tuesday surprised markets by announcing plans to cut a number of rates, including that of existing mortgages. Mainland Chinese stocks jumped on the news.

The move may mark “the beginning of the end of China’s longest deflationary streak since 1999,” Larry Hu, chief China economist at Macquarie, said in a note. The country has been struggling with weak domestic demand.
“The most likely path to reflation, in our view, is through fiscal spending on housing, financed by the PBOC’s balance sheet,” he said, stressing that more fiscal support is needed, in addition to more efforts to bolster the housing market.
The bond market reflected more caution than stocks. The Chinese 10-year government yield fell to a record low of 2% after the rate cut news, before climbing to around 2.07%. That’s still well below the U.S. 10-year Treasury yield of 3.74%. Bond yields move inversely to price.
“We will need major fiscal policy support to see higher CNY government bond yields,” said Edmund Goh, head of China fixed income at abrdn. He expects Beijing will likely ramp up fiscal stimulus due to weak growth, despite reluctance so far.
“The gap between the U.S. and Chinese short end bond rates are wide enough to guarantee that there’s almost no chance that the US rates would drop below those of the Chinese in the next 12 months,” he said. “China is also cutting rates.”

The differential between U.S. and Chinese government bond yields reflects how market expectations for growth in the world’s two largest economies have diverged. For years, the Chinese yield had traded well above that of the U.S., giving investors an incentive to park capital in the fast-growing developing economy versus slower growth in the U.S.
That changed in April 2022. The Fed’s aggressive rate hikes sent U.S. yields climbing above their Chinese counterpart for the first time in more than a decade.
The trend has persisted, with the gap between the U.S. and Chinese yields widening even after the Fed shifted to an easing cycle last week.
“The market is forming a medium to long-term expectation on the U.S. growth rate, the inflation rate. [The Fed] cutting 50 basis points doesn’t change this outlook much,” said Yifei Ding, senior fixed income portfolio manager at Invesco.
As for Chinese government bonds, Ding said the firm has a “neutral” view and expects the Chinese yields to remain relatively low.
China’s economy grew by 5% in the first half of the year, but there are concerns that full-year growth could miss the country’s target of around 5% without additional stimulus. Industrial activity has slowed, while retail sales have grown by barely more than 2% year-on-year in recent months.

Fiscal stimulus hopes

China’s Ministry of Finance has remained conservative. Despite a rare increase in the fiscal deficit to 3.8% in Oct. 2023 with the issuance of special bonds, authorities in March this year reverted to their usual 3% deficit target.
There’s still a 1 trillion yuan shortfall in spending if Beijing is to meet its fiscal target for the year, according to an analysis released Tuesday by CF40, a major Chinese think tank focusing on finance and macroeconomic policy. That’s based on government revenue trends and assuming planned spending goes ahead.
“If general budget revenue growth does not rebound significantly in the second half of the year, it may be necessary to increase the deficit and issue additional treasury bonds in a timely manner to fill the revenue gap,” the CF40 research report said.
Asked Tuesday about the downward trend in Chinese government bond yields, PBOC Gov. Pan Gongsheng partly attributed it to a slower increase in government bond issuance. He said the central bank was working with the Ministry of Finance on the pace of bond issuance.
The PBOC earlier this year repeatedly warned the market about the risks of piling into a one-sided bet that bond prices would only rise, while yields fell.
Analysts generally don’t expect the Chinese 10-year government bond yield to drop significantly in the near future.
After the PBOC’s announced rate cuts, “market sentiment has changed significantly, and confidence in the acceleration of economic growth has improved,” Haizhong Chang, executive director of Fitch (China) Bohua Credit Ratings, said in an email. “Based on the above changes, we expect that in the short term, the 10-year Chinese treasury bond will run above 2%, and will not easily fall through.”
He pointed out that monetary easing still requires fiscal stimulus “to achieve the effect of expanding credit and transmitting money to the real economy.”
That’s because high leverage in Chinese corporates and households makes them unwilling to borrow more, Chang said. “This has also led to a weakening of the marginal effects of loose monetary policy.”

Breathing room on rates

The U.S. Federal Reserve’s rate cut last week theoretically eases pressure on Chinese policymakers. Easier U.S. policy weakens the dollar against the Chinese yuan, bolstering exports, a rare bright spot of growth in China.
China’s offshore yuan briefly hit its strongest level against the U.S. dollar in more than a year on Wednesday morning.
“Lower U.S. interest rates provide relief on China’s FX market and capital flows, thus easing the external constraint that the high U.S. rates have imposed on the PBOC’s monetary policy in recent years,” Louis Kuijs, APAC Chief Economist at S&P Global Ratings, pointed out in an email Monday.
For China’s economic growth, he is still looking for more fiscal stimulus: “Fiscal expenditure lags the 2024 budget allocation, bond issuance has been slow, and there are no signs of substantial fiscal stimulus plans.” More

Italy’s UniCredit appears to have caught German authorities off guard with a potential multibillion euro merger of Frankfurt-based Commerzbank.
Market observers told CNBC on Tuesday that the swoop may have provoked a sense of national embarrassment among Germany’s government, while it’s been argued that the outcome of the takeover attempt could put the meaning of the European project at stake.
Milan-based UniCredit announced on Monday that it had increased its stake in Commerzbank to around 21% and submitted a request to boost that holding to up to 29.9%.

A protestor holds a placard with a slogan reading “Stop Merger Horror” during a union demonstration outside the Commerzbank AG headquarters in Frankfurt, Germany, on Tuesday, Sept. 24, 2024.
Bloomberg | Bloomberg | Getty Images

Italy’s UniCredit appears to have caught German authorities off guard with a potential multibillion-euro merger of Frankfurt-based Commerzbank, a move that has triggered a fiery response from Berlin.
Market observers told CNBC that the swoop may have provoked a sense of national embarrassment among Germany’s government, which firmly opposes the move, while it’s been argued that the outcome of the takeover attempt could even put the meaning of the European project at stake.

Milan-based UniCredit announced on Monday that it had increased its stake in Commerzbank to around 21% and submitted a request to boost that holding to up to 29.9%. It follows UniCredit’s move to take a 9% stake in Commerzbank earlier this month.
“If UniCredit can take Commerzbank and take it to their level of efficiency, there’s a tremendous upside in terms of increased profitability,” Octavio Marenzi, CEO of consulting firm Opimas, told CNBC’s “Squawk Box Europe” on Tuesday.
“But [German Chancellor] Olaf Scholz is not an investor. He’s a politician and he’s very concerned about the jobs side of things. And if you look at what UniCredit has done in terms of slimming down things in its Italian operations or particularly in its German operations, it’s been quite impressive,” Marenzi said.

Scholz on Monday criticized UniCredit’s decision to up the ante on Commerzbank, describing the move as an “unfriendly” and “hostile” attack, Reuters reported.
Commerzbank’s Deputy Chair Uwe Tschaege, meanwhile, reportedly voiced opposition to a potential takeover by UniCredit on Tuesday. Speaking outside of the lender’s headquarters in central Frankfurt, Tschaege said the message was simple and clear: “We don’t want this.”

“I feel like vomiting when I hear his promises of cost savings,” Tschaege reportedly added, referring to UniCredit ‘s CEO Andrea Orcel.
Separately, Stefan Wittman, a Commerzbank supervisory board member, told CNBC on Tuesday that as many as two-thirds of the jobs at the bank could disappear if UniCredit successfully carries out a hostile takeover.
The bank has yet to respond to a request for comment on Wittmann’s statement.

Hostile takeover bids are not common in the European banking sector, although Spanish bank BBVA shocked markets in May when it launched an all-share takeover offer for domestic rival Banco Sabadell. The latter Spanish lender rejected the bid.
Opimas’ Marenzi said the German government and trade unions “are basically looking at this and saying this means we could lose a bunch of jobs in the process — and it could be quite substantial job losses.”
“The other thing is there might be a bit of a national embarrassment that the Italians are coming in and showing them how to run their banks,” he added.
A spokesperson for Germany’s government was not immediately available when contacted by CNBC on Tuesday.
Germany’s Scholz has previously pushed for the completion of a European banking union. Designed in the wake of the 2008 global financial crisis, the European Union’s executive arm announced plans to create a banking union to improve the regulation and supervision of lenders across the region.

What’s at stake?

Craig Coben, former global head of equity capital markets at Bank of America, said the German government would need to find “very good” reasons to block UniCredit’s move on Commerzbank, warning that it would also have to be consistent with the principles around European integration.
“I think it is very difficult for UniCredit to take over or to reach an agreement on Commerzbank without the approval of the German government, just as a practical matter — but I think Germany needs to find a legitimate excuse if it wants to intervene [or] if it wants to block the approach from UniCredit,” Coben told CNBC’s “Squawk Box Europe” on Tuesday.

The Commerzbank AG headquarters, in the financial district of Frankfurt, Germany, on Thursday, Sept. 12, 2024.
Emanuele Cremaschi | Getty Images News | Getty Images

“Germany has signed up to the [EU’s] single market, it has signed up to the single currency, it has signed up to [the] banking union and so it would be inconsistent with those principles to block the merger on the grounds of national interest,” he continued.
“And I think that’s really what’s at stake here: what is the meaning of [the] banking union? And what is the meaning of the European project?”
Former European Central Bank chief Mario Draghi said in a report published earlier this month that the European Union needs hundreds of billions of euros in additional investment to meet its key competitiveness targets.
Draghi, who has previously served as Italian prime minister, also cited the “incomplete” banking union in the report as one factor that continues to hinder competitiveness for the region’s banks.
— CNBC’s April Roach contributed to this report. More

The U.S. Department of Justice on Tuesday sued Visa, the world’s biggest payments network, saying it propped up an illegal monopoly over debit payments.
The DOJ said Visa imposed “exclusionary” agreements on partners and smothered upstart firms.
Visa and its smaller rival Mastercard have surged over the past two decades, reaching a combined market cap of roughly $1 trillion.

Justin Sullivan | etty Images

The U.S. Justice Department on Tuesday sued Visa, the world’s biggest payments network, saying it propped up an illegal monopoly over debit payments by imposing “exclusionary” agreements on partners and smothering upstart firms.
Visa’s moves over the years have resulted in American consumers and merchants paying billions of dollars in additional fees, according to the DOJ, which filed a civil antitrust suit in New York for “monopolization” and other unlawful conduct.

“We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market,” Attorney General Merrick Garland said in a DOJ release.
“Merchants and banks pass along those costs to consumers, either by raising prices or reducing quality or service,” Garland said. “As a result, Visa’s unlawful conduct affects not just the price of one thing — but the price of nearly everything.”
Visa and its smaller rival Mastercard have surged over the past two decades, reaching a combined market cap of roughly $1 trillion, as consumers tapped credit and debit cards for store purchases and e-commerce instead of paper money. They are essentially toll collectors, shuffling payments between banks operating for the merchants and for cardholders.
Visa called the DOJ suit “meritless.”
“Anyone who has bought something online, or checked out at a store, knows there is an ever-expanding universe of companies offering new ways to pay for goods and services,” said Visa general counsel Julie Rottenberg.

“Today’s lawsuit ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving,” Rottenberg said. “We are proud of the payments network we have built, the innovation we advance, and the economic opportunity we enable.”
More than 60% of debit transactions in the U.S. run over Visa rails, helping it charge more than $7 billion annually in processing fees, according to the DOJ complaint.
The payment networks’ decades-old dominance has increasingly attracted attention from regulators and retailers.

Litany of woes

In 2020, the DOJ filed an antitrust suit to block Visa from acquiring fintech company Plaid. The companies initially said they would fight the action, but soon abandoned the $5.3 billion takeover.
In March, Visa and Mastercard agreed to limit their fees and let merchants charge customers for using credit cards, a deal retailers said was worth $30 billion in savings over a half decade. A federal judge later rejected the settlement, saying the networks could afford to pay for a “substantially greater” deal.
In its complaint, the DOJ said Visa threatens merchants and their banks with punitive rates if they route a “meaningful share” of debit transactions to competitors, helping maintain Visa’s network moat. The contracts help insulate three-quarters of Visa’s debit volume from fair competition, the DOJ said.
“Visa wields its dominance, enormous scale, and centrality to the debit ecosystem to impose a web of exclusionary agreements on merchants and banks,” the DOJ said in its release. “These agreements penalize Visa’s customers who route transactions to a different debit network or alternative payment system.”
Furthermore, when faced with threats, Visa “engaged in a deliberate and reinforcing course of conduct to cut off competition and prevent rivals from gaining the scale, share, and data necessary to compete,” the DOJ said.

Paying off competitors

The moves also tamped down innovation, according to the DOJ. Visa pays competitors hundreds of millions of dollars annually “to blunt the risk they develop innovative new technologies that could advance the industry but would otherwise threaten Visa’s monopoly profits,” according to the complaint.
Visa has agreements with tech players including Apple, PayPal and Square, turning them from potential rivals to partners in a way that hurts the public, the DOJ said.
For instance, Visa chose to sign an agreement with a predecessor to the Cash App product to ensure that the company, later rebranded Block, did not create a bigger threat to Visa’s debit rails.
A Visa manager was quoted as saying “we’ve got Square on a short leash and our deal structure was meant to protect against disintermediation,” according to the complaint.
Visa has an agreement with Apple in which the tech giant says it will not directly compete with the payment network “such as creating payment functionality that relies primarily on non-Visa payment processes,” the complaint alleged.
The DOJ asked for the courts to prevent Visa from a range of anticompetitive practices, including fee structures or service bundles that discourage new entrants.
The move comes in the waning months of President Joe Biden’s administration, in which regulators including the Federal Trade Commission and the Consumer Financial Protection Bureau have sued middlemen for drug prices and pushed back against so-called junk fees.
In February, credit card lender Capital One announced its acquisition of Discover Financial, a $35.3 billion deal predicated in part on Capital One’s ability to bolster Discover’s also-ran payments network, a distant No. 4 behind Visa, Mastercard and American Express.
Capital One said once the deal is closed, it will switch all its debit card volume and a growing share of credit card volume to Discover over time, making it a more viable competitor to Visa and Mastercard.

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Israel’s economy should have been trundling towards recovery. After all, many of the 300,000 workers who left their jobs to fight have now returned to offices, factories and farms. Instead, a difficult situation is becoming ever more acute. GDP growth came to just 0.7% between April and June, on an annualised basis, some 5.2 percentage points below economists’ expectations, according to Bloomberg, a news agency. On September 16th Bezalel Smotrich, Israel’s finance minister, was forced to ask legislators to approve an emergency deficit increase. It was the second time he had made such a request this year. More