A Clash Over Market Share and Competition:

The DOJ strikes Visa with Antitrust Claim:

By: Sabib Hossain

On September 24th, 2024, the United States Department of Justice sued Visa on accounts of illegally monopolizing the market for consumers’ payments amounting to trillions of dollars annually in an attempt to open the debit card market for competition. On this news, the stock price fell 5% on Tuesday.

To address these claims, Visa General Counsel Julie Rottenberg stated that the lawsuit, “ignores the reality that Visa is just one of many competitors in a debit space that is growing, with entrants who are thriving.”

According to the DOJ, Visa controls 60% market share in debit payment, generating $7 billion annually in debit swipe fees. This underscores the other notable players in the market, such as American Express, Discovery, and Mastercard. Visa has been at the center of criticism from lawmakers and regulators for their overwhelming control of the payments industry. Visa has taken several measures to ensure competitors would not dilute their market share. The company has signed a number of contracts with large merchants and acquirers, controlling the merchant routing decisions. These contracts entail Visa paying for the merchant’s loyalty; if this is not followed, severe consequences follow. When a company routes away from Visa, they are met with high rack rates. According to the Department of Justice, dozens of merchants represent “hundreds of billions of dollars of 2023 debit payment volume have signed contracts to route 100% of their eligible debit volume to Visa.” These agreements are structured as cliff pricing, which grants the merchant or acquirer a lower price for every transaction routed of Visa as long as its volume of transactions meets the agreed threshold.

Additionally, Visa uses its leverage over its potential debit customers, such as Apple. Viewing Apple Pay as a threat, Visa paid Apple to limit innovation: this is applicable for other potential competitors. To dissuade competitors, Visa provides them monetary incentives to promote their products, in some cases worth hundreds of millions of dollars annually.

Suing companies for benefiting from a lack of competition and profitable contract clauses is not an anomaly. The DOJ sued Live Nation Entertainment in an antitrust lawsuit in May. They claimed that the Ticketmaster owner decreased the number of competitors, who could have reduced ticket price fees.

The debit card market is lucrative. On average, Americans use a debit card twice as much as a credit card. To conceptualize this dominance, Visa has a market capitalization of $530 billion, just under Walmart and JPMorgan Chase. There are legitimate claims against Visa, but as for any antitrust lawsuit, it will take years to fully develop. The lawsuit will likely be inherited by a new administration next year.

For now, it is the consumer who pays the price. As fees increase, merchants compensate by raising prices for goods and services.

References:

● Case 1:24-cv-07214 document 1 filed 09/24/24, September 24, 2024.

https://www.justice.gov/opa/media/1370421/dl.

● “Largest American Companies by Market Capitalization.” CompaniesMarketCap.com - companies ranked by market capitalization. Accessed September 26, 2024. https://companiesmarketcap.com/usa/largest-companies-in-the-usa-by-market-cap/.

● Michael, Dave, and Angel Au-Yeung. Justice Department sues Visa, Alleges Illegal Monopoly in Debit-Card Payment, September 24, 2024.

https://www.wsj.com/finance/regulation/justice-department-sues-visa-alleges-illegal-mon opoly-in-debit-card-payments-a9ecd39c.

● Scarcella, Mike. Visa taps hardened D.C. duo to battle US Monopoly Lawsuit, September 25, 2024.

https://www.reuters.com/legal/government/visa-taps-hardened-dc-duo-battle-us-monopol y-lawsuit-2024-09-25/.

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Is it Time for Paytm to Go Home?

By: Tonima Hossain

Paytm, one of India's largest digital payments and financial services platforms, hasn't done well on the first day of their IPO. Paytm is used by more than 333 million consumers, backed by SoftBank Group, Berkshire Hathaway Inc., and other influential companies. While other startups have done extremely well after going public, Paytm didn't seem to share this trend, even though this is India's largest IPO to date.

After selling $2.5 billion of stock, the shares declined rapidly. Starting off at the price of 2,150 rupees per share, equivalent to $28.95, it declined to 1,564 rupees, equivalent to $21.07. Using a circuit breaker, the prices were halted from falling further, since they had already fallen 20% from their opening price. This disaster started due to a few separate factors. Primarily, individual investors were excited about the IPO, due to the benefits they may achieve from gains on the first day of trading, otherwise known as listing day. But once the shares started falling, everybody began to give up on the IPO. A serious concern of investors was that Paytm is competing against PhonePe which is backed by giants like Google and Walmart; no one wanted to be stuck with the losing stock that was priced aggressively. In addition, a recent report written by analysts at Macquarie stated that Paytm's IPO should be listed as 1,200 rupees, and that Paytm was a "cash-burning machine" due to their no visible direction of profit. Radhakishan Damani, an Indian billionaire, aired his concerns claiming that e-commerce and fintech aren't destined to succeed in India as they have in countries like America. While the internet market in India has not fully been tapped into yet, the market makes it evident that potential alone cannot validate the price of a stock. While Paytm fell 37% in the first two days of trading, as of November 25th it has rebounded 20%. Paytm's opening day may indicate the stock is destined to fail, but a short period of time does not indicate how successful a stock will be in the future. There are few investors who are holding out hope and are using Paytm as a value investment, including Blackrock and Canada Pension Plan, who have increased their stake in Paytm by purchasing more stock. Looks like there are varying opinions on what the right move is, and only time will tell if the stock hit its peak or if it will keep on climbing.

How the Retail Experience Has Changed in a Post-Pandemic World

By: Juliya Marchuk

Retail shopping - Buying loved one's gifts or updating our wardrobes, all of us have found ourselves in a mall or large shopping centers at one point or another. After the pandemic hit in early March of 2020, the entire world of retail shopping had completely changed. Many retail businesses like Century 21, JCPenney, and some locations of DSW had closed because they did not have the financial means to keep many of their store locations open. Many nationwide chains were forced to close and restructure their companies through bankruptcy and close their money-losing locations to keep their numbers profitable. Macy's chief executive officer stated, "We were carrying too much inventory for years," and "Through the pandemic, our opportunity to work through our stock and get in line with demand is a benefit we'll hold on to going forward."(1) One of the many factors that retail businesses targeted after reopening to the public was the improvement of their customer services. Knowing that customers can shop online and not have to face in-person communication with the staff made the company's emphasis on improving in-person shopping much higher. Whether it be implementing call centers, or having the staff go through additional training, the main takeaway is that customer service is only going to improve from this point on.

Another improvement that retail businesses will be implementing is improvements in technology. Not only do we see this in retail, but also in the world around us. As everything is moving to an online world, it is only appropriate for retail businesses to move forward in technological advancements as well. Paper records are being replaced with online devices . The "chat now" feature when online shopping is something which many companies are implementing called "real-time communication with facility professionals". The pandemic has forced these retail businesses to figure out what exactly needed to be done and ways that they could all improve. The temporary close gave them the time to figure out what improvements needed to be done and how they could do this efficiently. As everything is slowly returning to "normal" we can only expect better experiences and improvements while retail shopping in the future.

The Pandemic's Lasting Effects on the Supply Chain Issue, and its Impacts on Small Businesses

By: Lamya Serhir

As 2021 comes to a close, the U.S. continues facing supply chain problems as materials such as microchips for automobiles, and lumber for housing are low in supply but high in demand. The country has yet to recover from the 'Great Resignation' over the pandemic, which is when many workers quit their jobs due to the influx of stimulus checks and availability of alternative jobs such as freelance work. One such industry that is experiencing both a shortage of supplies and workers is Pharmaceutical. According to a November study by the National Community Pharmacists Association, 60% of independent pharmacy owners and managers stated that they are "dealing with supply chain disruptions in which nearly 70% reported struggling to fill staff positions" (Musto, Fox Business). Only 31% described the overall financial health of their business as "very good or somewhat good." Patients are advised not to panic buy, but instead call the pharmacies to check their supply during these times of uncertainty. But pharmacies are not alone, as recent reports show 90% of small business owners are enduring supply chain disruptions with "25% experiencing slower delivery times in their customers" in addition to increased costs (Yahoo News). To combat this, some small businesses have been buying inventory in bulk, which is risky since extra inventory could greatly decrease cash flow, but many business owners state "having empty shelves during the holiday season would be even more costly" (Qin, Morning Brew). Although these conditions have made it more difficult for small businesses to endure, it has also led to local companies leaning on each other a lot more as a result. Since there have been a lot of delays in delivery, especially during the holiday season, local manufacturers are given a competitive edge (Krueger, New York Times). For example, supplier bargaining power has increased for companies like Coronet LED, a lighting company based in Totowa, NJ with a showroom in Manhattan. Companies are beginning to see the benefit of having part of their supply chain in New York, so they always have some stock that is easily available. All in all however, the shortage of essential products has given more bargaining power to manufacturing companies and suppliers at the expense of small or independently owned businesses as the holidays arrive. The effects of the pandemic have yet to subside, and President Biden is only facing increasing pressure to fully stabilize the economy. Alleviating the delays and shortages of materials in the supply chain is one hurdle he has yet to overcome, and its solution doesn't seem to be in sight any time soon.

The Buzz Around NFTs, and the Financial Structure Behind Them

By: Koorosh Nabatian

In March 2021, a piece of digital art sold for nearly $70 million. This marked the record for the largest NFT sale in history, making creator Beeple the third most valuable living artist in the world. Outside of this massive sale, people continue to spend on NFTs as trading volume reached $10.67 billion in the third quarter of 2021 (Kay, 2021). Many investors are looking to digital collectibles and NFT art in hopes of long-term price appreciation. However, not everyone buys an NFT to speculate on its price; some within the crypto community buy NFTs to earn social capital. According to widely-known NFT investor Cooper Turley, successful crypto investors set their Twitter or Discord avatars to NFTs in order to "flex" and provide an "investor access and acceptance in the crypto community" (Locke 2021). While many are either looking to earn profit or earn status through NFTs, some buy digital art simply because they like it. But why spend money on an NFT when digital copies are free on Google Images?

An NFT is a cryptographic asset stored on a blockchain with "unique identification codes and metadata that distinguish them from each other" (Sharma, 2021a). NFTs are often rare digital collectibles or artwork, but can also be found in the forms of audio or music. The fungibility aspect of NFTs is best understood through the following example; If Albert owes Bob one bitcoin for a transaction, Bob will not care which bitcoin he receives since they are all alike. Conversely, each NFT is unique, so if Bob is owed one zombie cryptopunk token (type of NFT collectible), Albert cannot pay him with an alien cryptopunk token instead. Digital art collectibles such as cryptopunks are scarce in addition to being non fungible. There are only 10,000 pixelated digital characters in circulation, and only one person can own each cryptopunk on the Ethereum blockchain. One may wonder why anyone would pay hundreds of thousands of dollars for a cryptopunk when exact copies are available online. The difference is that an NFT is an asset "with true ownership and provenance" (Dickey, 2021). Since an NFT owner can prove and trace the purchase of the original asset, he or she can then resell the asset for profit if the demand for the original NFT has increased. Not all NFTs must be purchased with ethereum, either. NBA Topshots is the best example of a digital collectible, in this case a player card, that can be purchased using a credit card. While collecting digital rarities is very popular, investors should confirm to themselves why they are buying in, and what risks are present.

Investors should understand that purchasing an NFT is more speculation than investment. Many people are attracted to the tremendous upside for price appreciation in the digital asset space, and many will buy NFTs due to F.O.M.O. Unlike a stock with cash flows that can be discounted and projected several years into the future, NFTs have no such cash flows. The value of an NFT is based solely on the perceived value of the market. There is nothing wrong with the speculative nature of NFTs, for many other "investments" such as gold or Bitcoin are also just valuable in the eye of the beholder. However, the issue is that many people buy NFTs hoping to get rich quick. It is essential to understand the speculative nature of such a gamble. Although one day the market for NFTs could go to zero, there is also tremendous upside for capital appreciation. One should understand this dynamic, and only purchase an NFT if seeking a speculative asset or if he or she actually assigns value to owning a cool digital asset.