The National Retail Federation (NRF) welcomed a federal appeals court ruling that payment processing network Pulse can sue Visa. The lawsuit is over practices claimed to reduce competition over who gets to process billions of dollars in debit card transactions each year.

“Visa and Mastercard have responded to efforts to bring competition to debit card processing by introducing multiple initiatives intended to keep the market to themselves and block innovation,” NRF Chief Administrative Officer and General Counsel Stephanie Martz said. “This ruling makes it clear that these practices will not be allowed to go unchallenged and sends a message that the days of giant card networks dominating the market are numbered.”

A three-judge panel of the 5th U.S. Circuit Court of Appeals reinstated two counts of Pulse’s 2014 antitrust lawsuit against Visa, saying a U.S. District Court judge in Texas had improperly dismissed the case in 2018 when she said Visa’s practices affected only merchants and card-issuing banks rather than Pulse. The appeals court sent the case back to District Court for further consideration and ordered that a new judge be assigned.

Pulse argued in its lawsuit that a “Fixed Acquirer Network Fee” created by Visa after Congress passed the Durbin Amendment to regulate debit card transactions in 2010 violates federal antitrust law. The new monthly fee came in addition to existing per-transaction fees for processing debit transactions. To recoup the new fee, merchants would be forced to route debit transactions through Visa’s networks even if they preferred to use a competitor such as Pulse, the lawsuit claimed.

Pulse also cited new agreements Visa reached with card-issuing banks and merchants giving them rebates, discounts and other incentives to route a certain number of debit transactions each month over Visa’s networks.

Those two issues will now be heard in court. The appeals court let stand the District Court’s dismissal of Pulse’s claim that it was harmed by Visa’s “PIN-Authenticated Visa Debit” program, which guarantees that Visa can compete for all PIN transactions on Visa-branded debit cards even if the issuer has not enabled Visa’s Interlink PIN network on the card.

NRF and other merchant trade associations joined in a 2019 amicus brief in support of Pulse.

Congress passed the Durbin Amendment in 2010 to address a broken market of soaring swipe fees to process debit transactions set by Visa and Mastercard and lack of competition among card-issuing banks. The consumer protection law required that banks enable debit transactions to be processed over at least one unaffiliated independent network such as Pulse in addition to Visa and Mastercard’s networks and gave merchants the right to choose which processor to use. Independent networks charge lower “swipe” fees to process transactions and, according to the Federal Reserve, have one-fifth the fraud of Visa and Mastercard’s networks. In addition, the nation’s largest banks were required to set “reasonable” debit card swipe fees and keep them proportional to their costs of processing transactions.

The Durbin Amendment has increased the number of debit transactions routed over independent networks, but Visa and Mastercard’s networks still account for the majority of transactions. That is particularly true online, where independent networks account for only 6% of transactions because many banks have not enabled technology needed to allow transactions to be processed without a PIN. Merchant groups have argued that the failure is a response to incentives to send transactions to Visa and Mastercard.

Debit and credit card swipe fees came to $137.8 billion in 2021, with debit accounting for $32.6 billion of the total, according to the Nilson Report. The fees are most merchants’ highest operating cost after labor and drive prices paid by consumers, amounting to more than $700 a year for the average family.

The National Retail Federation advocates for the people, brands, policies and ideas that help retail thrive. From its headquarters in Washington, D.C., NRF has been a voice for every retailer and every retail job, educating, inspiring and communicating the powerful impact retail has on local communities and global economies.