Visa faces regulatory scrutiny over tokenization pricing

Visa is in hot water again following news that it is being investigated by the U.S. Justice Department (DoJ) over its charges to merchants for tokenization technology it uses to safeguard cardholder data.

Visa faces regulatory scrutiny over tokenization

The tokenization service substitutes a cardholder’s 16-digit account number with a token that applies to specific devices or merchants, only Visa can unlock the token.

DoJ officials have now begun to investigate Visa’s policy of charging retailers more if they choose not to use this technology.

The probe is the latest development in a more than two-year investigation by the DoJ into allegations that Visa is attempting to monopolise the debit card market.

Visa argues that the technology, which it first introduced in 2014, helps protect digital payments as cardholder information passes from merchants to banks.

More than 4 billion tokens have now been issued, more than cards in circulation, with 13,000 retailers using the service.

According to a document seen by Bloomberg, merchants were informed in recent weeks that Visa and its partners would be rolling out routine fee adjustments.

In particular, the new plan would charge merchants higher rates if they chose not to use Visa’s tokenization technology than if they opted into the service, it is this announcement that revived the DoJ’s interest in tokenization.

In particular, retailers who use the technology are expected to pay card fees worth $1.28 for every $100 in purchases on the traditional Visa card. In comparison, a merchant is expected to pay $1.38 if they don’t use the technology.

This disparity is the basis of the fresh scrutiny of Visa’s policies. Notably, it comes just a few months after its key competitor, Mastercard faced a comparable case.

Two years ago, the DOJ’s antitrust division held investigations on whether Visa had restricted the merchants’ ability to send debit transactions via less costly networks.

In October 2022, the US Federal Trade Commission commenced an investigation on whether Mastercard and Visa’s security tokens restrict debit-card routing competition on particular digital payments.

As indicated by Visa, DOJ’s antitrust division asked the company to provide it with additional documents on its debit card practices within the US. This included information on its competition with other payment networks.

Mastercard was also required to avail additional information to the DOJ.

Mastercard  reached a settlement in December with the Federal Trade Commission over its tokenization practices.

Mastercard was alleged to have used the technology to prevent merchants from using alternate payment networks.

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