1. Introduction

Merchant routing restrictions arise when a payment network, issuer, acquirer, wallet provider, or other payment-system operator restricts a merchant's ability to decide which payment network or processing route should handle a transaction.

The issue is particularly important in multi-network payment systems. A single debit or payment instrument may be capable of being processed through more than one network. If the dominant network prevents merchants from selecting a competing route, the restriction can reduce inter-network competition, increase merchant processing costs, and make competing networks less viable.

In competition-law analysis, merchant routing restrictions may overlap with:

• denial or limitation of access to payment infrastructure;
• exclusivity;
• tying and technological foreclosure;
• discriminatory access;
• anti-steering arrangements;
• interoperability restrictions;
• network effects;
• abuse of dominance;
• vertical restraints; and
• exclusionary conduct.

The precise legal treatment depends on the jurisdiction, market structure, and whether the restriction concerns credit cards, debit cards, wallets, QR payments, payment gateways, or another payment infrastructure.

2. What Is Merchant Routing?

A simplified payment transaction may look like:

Merchant → Acquirer/Payment Gateway → Payment Network → Issuer → Customer

Where several networks are available, routing determines which network processes the transaction.

For example:

Debit card → Network A or Network B → Issuing bank

If both Network A and Network B can process the transaction, the merchant or acquirer may have an economic interest in selecting the cheaper or technically preferable route.

A merchant routing restriction exists where a network or other powerful participant prevents or materially discourages that choice.

Typical restrictions

Examples include:

1. contractual provisions requiring transactions to use a particular network;
2. technological blocking of alternative routing;
3. tokenization arrangements that make competing routing impossible;
4. additional fees imposed when an alternative network is used;
5. denial of transaction information required by competing networks;
6. rules preventing merchants from directing transactions to another network;
7. wallet restrictions that automatically select one network;
8. penalties for merchants using competing routes; and
9. technical authentication systems designed to make alternative routing unavailable.

3. Why Routing Matters for Competition

Routing is important because payment networks frequently operate in multi-sided markets.

A simplified structure is:

Cardholder side ↔ Payment network ↔ Merchant side

The network needs both consumers and merchants.

If merchants can choose among competing networks, networks have an incentive to compete on:

• merchant fees;
• processing speed;
• reliability;
• fraud prevention;
• authentication;
• settlement terms;
• technological compatibility; and
• other service conditions.

A restriction that eliminates merchant choice can therefore reduce competitive pressure.

However, routing restrictions are not automatically unlawful. A network may have legitimate technical, security, fraud-prevention, or interoperability reasons for particular routing rules. Competition analysis therefore examines the actual competitive effect and justification.

4. Main Competition Concerns

A. Foreclosure of Competing Networks

The central concern is foreclosure.

Suppose:

• Network A has 70% of transactions;
• Network B has 30%;
• both can process the same debit transaction; and
• Network A prevents merchants from routing transactions to Network B.

Network B may lose transaction volume despite being technically capable of processing the transaction.

Reduced transaction volume can then increase Network B's costs and make it less attractive to banks and merchants.

This can reinforce Network A's position through network effects.

B. Higher Merchant Fees

Routing restrictions may reduce merchants' ability to select lower-cost networks.

If Network A knows that merchants cannot easily move transactions to Network B, competitive pressure on Network A's fees may weaken.

The concern is therefore:

Routing restriction → reduced network competition → weaker fee competition → potentially higher merchant costs

This was a central issue in U.S. payment-card litigation.

C. Technological Foreclosure

Modern routing restrictions may not appear in contracts at all.

A platform can achieve substantially the same result through:

• tokenization;
• APIs;
• wallet architecture;
• authentication;
• payment credentials;
• default routing algorithms; or
• technical access requirements.

Thus, competition authorities increasingly have to examine technical functionality, not merely written agreements.

D. Network Effects

Payment networks exhibit strong network effects.

More merchants accepting Network A can make Network A more attractive to consumers.

More consumers using Network A can make merchants more willing to accept it.

A routing restriction can therefore have cumulative effects:

Routing restriction → loss of transactions for rival → weaker rival network → fewer participants → greater incumbent advantage

5. Merchant Routing Restrictions and Abuse of Dominance

Where a payment network possesses substantial market power, routing restrictions may potentially constitute exclusionary conduct.

Relevant theories may include:

1. Refusal to provide access

A dominant network may deny competing networks information, authentication capability, or technical access necessary to process transactions.

2. Discriminatory access

A dominant operator may provide routing functionality to affiliated services while withholding comparable access from competitors.

3. Exclusive routing

A dominant network may require transactions capable of being processed through several networks to use its own network.

4. Loyalty or penalty mechanisms

The operator may make alternative routing economically unattractive through fees or penalties.

5. Interoperability restrictions

The dominant network may make its infrastructure technically incompatible with competing networks.

6. Merchant Routing Restrictions and Vertical Agreements

Routing restrictions can also be examined as vertical restraints.

For example:

Payment network → merchant/acquirer

A contractual restriction preventing the merchant from using competing networks can potentially restrict competition between networks.

Relevant questions include:

• What is the relevant market?
• Is the payment network dominant?
• Are alternative networks realistically available?
• How many transactions are affected?
• How long does the restriction last?
• Are merchants contractually locked in?
• Are there technical barriers to switching?
• Does the restriction raise rivals' costs?
• Does it prevent entry?
• Are there legitimate security or technical justifications?

7. Two-Sided Market Complication

Payment networks create an important analytical complication.

A restriction that appears harmful to merchants may potentially produce benefits on the consumer side.

For example, a network might argue that routing restrictions:

• preserve payment acceptance;
• maintain security;
• reduce fraud;
• preserve rewards;
• ensure authentication;
• maintain network integrity; or
• encourage investment.

Therefore, competition analysis cannot necessarily examine merchant effects in isolation.

This issue became particularly important in Ohio v. American Express Co.

8. Key Case Laws

Case 1 — United States v. American Express Co.

21 F. Supp. 3d 187 (E.D.N.Y. 2014)

This is one of the foundational cases concerning restrictions on merchant steering and payment-network competition.

The U.S. Department of Justice challenged American Express rules preventing merchants from encouraging customers to use competing payment cards.

The government argued that merchants should be able to use competitive pressure by:

• steering customers toward cheaper cards;
• providing discounts;
• providing information concerning card costs; and
• encouraging alternative payment methods.

The district court concluded that American Express's anti-steering provisions violated Section 1 of the Sherman Act.

Importance

The case demonstrates that contractual restrictions preventing merchants from exploiting competition between payment networks can raise substantial antitrust concerns.

It is particularly relevant to routing restrictions because both involve preventing merchants from using alternative payment networks to obtain better competitive terms.

9. Case 2 — Ohio v. American Express Co.

585 U.S. 529 (2018)

The U.S. Supreme Court subsequently considered the American Express anti-steering dispute.

The Court treated the credit-card system as a two-sided transaction platform and held that the relevant market had to account for both sides of the platform.

The Court concluded that the plaintiffs had not demonstrated the necessary anticompetitive effects in the relevant two-sided market.

Importance for routing restrictions

This case establishes an important caution:

A restriction affecting merchants cannot necessarily be assessed solely by looking at merchant costs.

For payment networks, authorities may need to consider effects on:

• merchants;
• consumers/cardholders;
• network participation;
• transaction volume; and
• overall platform competition.

Thus, a routing restriction should be analyzed in the context of the entire payment ecosystem.

10. Case 3 — In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation

Second Circuit, 2016

This litigation concerned Visa and Mastercard rules relating to merchant acceptance, interchange fees, and anti-steering.

The plaintiffs challenged combinations of rules including:

• honor-all-cards requirements;
• anti-steering restrictions;
• no-surcharge rules; and
• other network rules affecting merchants' ability to influence payment choices.

The litigation illustrates how several individually formulated rules can operate together to reduce merchants' ability to respond to differences in payment-network costs.

Importance

For merchant routing analysis, the case is useful because competition authorities may examine the combined effect of network rules, rather than considering each restriction in isolation.

A routing rule combined with:

• exclusivity,
• default routing,
• contractual penalties, and
• technical restrictions

may have a stronger foreclosure effect than any individual measure.

11. Case 4 — FTC v. Mastercard

Mastercard Debit Routing / Tokenization Matter

The U.S. Federal Trade Commission challenged Mastercard practices concerning e-commerce debit transactions involving tokenized cards.

The FTC alleged that Mastercard used tokenization-related practices to prevent merchants from routing certain transactions through competing debit networks.

The issue was significant because Mastercard could allegedly use control over technical transaction information to make competing routing difficult or impossible.

The FTC ultimately approved a consent order requiring Mastercard to stop the challenged practices and provide competing networks with information necessary to process qualifying transactions.

Importance

This is especially important for modern digital payments.

It demonstrates that:

Technological control can produce the same competitive effect as a contractual routing prohibition.

Therefore, competition analysis should examine APIs, tokens, authentication systems, wallet architecture, and transaction data—not merely merchant agreements.

12. Case 5 — In re American Express Anti-Steering Rules Antitrust Litigation

Second Circuit, 2021

Commercial merchants brought claims alleging that American Express's anti-steering policies increased merchant fees.

The plaintiffs argued that the restrictions prevented merchants from steering customers toward lower-cost payment methods and thereby weakened competition among payment networks.

The Second Circuit ultimately addressed the plaintiffs' antitrust standing and proximate-cause problems and affirmed dismissal.

Importance

The case illustrates an important distinction:

Economic harm allegedly caused by a routing or steering restriction ≠ automatically sufficient antitrust standing or liability.

A claimant must establish the required causal connection between the challenged restriction and the claimed antitrust injury.

This is particularly relevant where merchants are attempting to challenge restrictions imposed by a network they do not directly use.

13. Case 6 — United States v. Visa/Mastercard

The DOJ's 2010 action against Visa, Mastercard and American Express challenged restrictions preventing merchants from steering customers toward competing payment networks.

Visa and Mastercard entered settlements requiring significant changes to their anti-steering practices.

The government characterized merchant steering as an important mechanism through which merchants could exert competitive pressure on payment networks.

Importance

The case demonstrates that:

• merchant choice can be an important competitive mechanism;
• payment networks can possess significant bargaining power over merchants;
• anti-steering restrictions can reduce inter-network competition; and
• remedies can focus on restoring merchants' ability to communicate preferences and incentives to customers.

14. Case 7 — WTO: China — Certain Measures Affecting Electronic Payment Services

China — Electronic Payment Services, DS413

Although this was a WTO dispute rather than a conventional antitrust case, it is highly relevant to payment-network routing and access.

The dispute concerned China's payment-card system and the position of China UnionPay (CUP).

The WTO panel examined measures including:

• requirements concerning UnionPay cards;
• terminal acceptance requirements;
• acquiring institutions' obligations; and
• the market position of CUP in RMB payment-card clearing.

The panel found that certain Chinese measures modified competitive conditions in favour of CUP and were inconsistent with China's WTO national-treatment obligations.

Importance

The case demonstrates how payment-network architecture, interoperability, acceptance requirements and access conditions can affect competitive opportunities for rival payment networks.

It is particularly useful when analyzing routing restrictions in China because it shows the importance of examining the regulatory and infrastructural framework surrounding payment networks.

15. Case 8 — Mastercard Debit Routing Enforcement

The later Mastercard matter is also significant because it concerned routing of debit transactions stored in electronic wallets.

The FTC stated that Mastercard's practices allegedly blocked merchants from routing certain e-commerce debit transactions over competing networks. The final order required Mastercard to cease those practices and provide competing networks with necessary account information.

Importance

This case establishes an important modern principle:

Payment-network competition can be undermined by control over technical data even where merchants theoretically have contractual routing freedom.

Consequently, regulators should investigate the practical ability to route—not merely formal contractual rights.

16. U.S. Regulation as an Important Benchmark

The U.S. regulatory framework provides an unusually direct example.

Regulation II prohibits payment-card networks from inhibiting a merchant's ability to direct an electronic debit transaction through any network that the issuer has enabled for that card.

The Federal Reserve's commentary specifically addresses technological and contractual practices that could prevent merchants from directing transactions to an alternative enabled network.

The framework therefore distinguishes between:

Permissible network choice
and
restrictions that effectively eliminate merchant routing choice.

17. Application to China Competition Law

For a China-focused competition analysis, merchant routing restrictions can potentially be examined under the Anti-Monopoly Law (AML), depending on the parties, market structure and conduct.

Relevant provisions may include:

Article 17 — Abuse of Dominant Market Position

Potential theories include:

• refusing access;
• discriminatory treatment;
• unreasonable transaction conditions;
• other exclusionary conduct.

Article 18 — Determination of Dominant Position

Authorities would consider factors such as:

• market share;
• ability to control prices or other trading conditions;
• financial and technological strength;
• dependence of counterparties;
• barriers to entry; and
• other relevant factors.

Article 22 — Abuse of Dominant Position

A dominant payment network could face scrutiny where routing restrictions constitute an exclusionary abuse.

Articles 19–20 and related provisions

Depending on the structure, market-power assessment and other provisions concerning competitive conduct may become relevant.

The precise classification depends on whether the restriction is imposed by:

• a payment network;
• a wallet;
• an acquiring platform;
• a bank;
• a digital-payment platform;
• a gateway;
• a merchant platform; or
• another infrastructure operator.

18. Relevant Chinese Competition-Law Questions

A Chinese enforcement analysis would typically ask:

A. Relevant market

Possible markets include:

• payment-network services;
• merchant acquiring;
• electronic payment processing;
• debit-card network services;
• wallet payment services;
• QR-payment services; or
• particular digital payment ecosystems.

Market definition must be based on substitutability rather than merely the technological label attached to the service.

B. Market power

Important factors include:

• transaction volume;
• merchant coverage;
• consumer adoption;
• network effects;
• access to payment infrastructure;
• switching costs;
• data advantages;
• technical interoperability;
• regulatory barriers; and
• dependence of merchants or acquirers.

C. Actual ability to switch

A merchant may theoretically have a contractual right to choose another network but lack a practical ability to do so.

For example:

Merchant has contractual choice → wallet automatically routes to Network A → alternative Network B cannot access token information → practical choice disappears.

Competition analysis should therefore consider effective choice, not merely formal choice.

19. Technical Routing Restrictions

Modern payment systems create several sophisticated forms of routing foreclosure.

1. Tokenization lock-in

A network controls payment tokens and prevents alternative networks from using the information necessary to process the transaction.

2. API restrictions

A payment platform restricts competing networks' access to APIs necessary for routing.

3. Authentication restrictions

A competing network cannot complete authentication even though the underlying card is technically enabled for it.

4. Default routing

A platform automatically selects its affiliated network and makes alternative routing difficult.

5. Data withholding

Transaction or account information necessary for processing is withheld from competing networks.

6. Economic routing penalties

An additional charge makes competing routing commercially unattractive.

The Federal Reserve has specifically indicated that imposing an additional cost on transactions routed through competing networks can itself inhibit routing.

20. Difference Between Routing Restriction and Steering Restriction

These concepts are related but not identical.

They can, however, occur together.

21. Legitimate Justifications

A routing restriction is not necessarily anti-competitive.

Potential legitimate explanations include:

Security

Restricting routing may be necessary to prevent fraud or unauthorized transactions.

Authentication

A particular network may require specialized authentication infrastructure.

Technical compatibility

Some networks may genuinely lack the capability to process a transaction.

Consumer protection

Routing rules may ensure transaction reliability or dispute-resolution protections.

Fraud monitoring

A network may require centralized processing to maintain fraud-detection systems.

Regulatory requirements

Payment systems may be required to use particular clearing or settlement arrangements.

The key question is whether the restriction is necessary and proportionate to the legitimate objective or instead goes beyond what is reasonably required and forecloses competitors.

22. Competition Assessment Framework

A useful framework is:

Step 1 — Identify the payment ecosystem

↓

Step 2 — Define the relevant product and geographic markets

↓

Step 3 — Determine whether multiple networks can technically process the transaction

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Step 4 — Identify the source of the routing restriction

↓

Step 5 — Determine whether the restricting party possesses market power

↓

Step 6 — Examine contractual, technical and economic barriers to alternative routing

↓

Step 7 — Measure foreclosure

↓

Step 8 — Examine effects on fees, entry, innovation and network participation

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Step 9 — Consider security, fraud and interoperability justifications

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Step 10 — Determine whether less restrictive alternatives exist

↓

Step 11 — Assess consumer and merchant effects

↓

Step 12 — Consider appropriate remedy

23. Evidence Relevant to Enforcement

Competition authorities may examine:

• merchant contracts;
• payment-network rules;
• technical specifications;
• API documentation;
• tokenization protocols;
• transaction-routing logs;
• routing algorithms;
• merchant complaints;
• fee schedules;
• internal strategy documents;
• switching rates;
• transaction-volume data;
• market shares;
• interoperability testing;
• authentication requirements;
• wallet architecture; and
• communications with acquirers.

Technical evidence is particularly important because a formally neutral contractual system can nevertheless create substantial practical foreclosure.

24. Possible Competitive Effects

A serious routing restriction may produce:

Short-term effects

• higher merchant fees;
• reduced payment-network choice;
• increased transaction costs;
• weaker bargaining power.

Medium-term effects

• loss of scale for competing networks;
• higher entry barriers;
• reduced innovation;
• greater merchant dependence.

Long-term effects

• network concentration;
• increased switching costs;
• reduced competitive pressure;
• technological lock-in.

The effects should be established with evidence rather than presumed solely from the existence of a routing rule.

25. Possible Remedies

Competition authorities may consider remedies such as:

1. prohibition of exclusive routing;
2. mandatory interoperability;
3. access to transaction information;
4. prohibition of discriminatory technical treatment;
5. removal of contractual routing penalties;
6. API-access requirements;
7. transparency obligations;
8. merchant routing rights;
9. separation of network and acquiring functions; and
10. monitoring of compliance.

The Mastercard FTC order illustrates how a remedy can focus on providing competing networks with the information necessary to make merchant routing choice operational.

26. Key Legal Principles From the Cases

The cases collectively illustrate several important principles:

1. Merchant choice can be an important source of payment-network competition.
2. Anti-steering and routing restrictions can reduce competitive pressure between payment networks.
3. Payment systems must sometimes be analyzed as two-sided or multi-sided markets.
4. Merchant harm alone may not establish antitrust liability.
5. Technical restrictions can be competitively equivalent to contractual restrictions.
6. Control over payment tokens or transaction information can create significant foreclosure power.
7. Formal routing rights may be meaningless if technical architecture prevents their exercise.
8. Security and technical justifications must be examined rather than automatically accepted or rejected.
9. Network effects can magnify relatively small routing restrictions.
10. Remedies may need to address technical interoperability as well as contractual terms.

27. Conclusion

Merchant routing restrictions are competition-sensitive because routing determines whether merchants can exploit competition among payment networks. A dominant network that prevents merchants from using technically available alternative networks may potentially weaken rival networks, increase switching costs, reduce fee competition and reinforce network effects.

The major authorities—including United States v. American Express, Ohio v. American Express, the Payment Card Interchange Fee litigation, the Mastercard debit-routing proceedings, and China — Electronic Payment Services (DS413)—show different dimensions of the problem.