Interchange Fees, Antitrust, and Indian Competition Law: The US Payment Card Case Explained | Competition Act 2002 and Sherman Act Analysis
Interchange Fees, Antitrust, and Indian Competition Law: The US Payment Card Case Explained | Competition Act 2002 and Sherman Act Analysis
Interchange Fees, Antitrust, and Indian Competition Law: The US Payment Card Case Explained | Competition Act 2002 and Sherman Act Analysis
Interchange Fees, Antitrust, and Indian Competition Law: The US Payment Card Case Explained | Competition Act 2002 and Sherman Act Analysis
The Hidden Tax on Every Swipe: Understanding Why Interchange Fee Antitrust Litigation Is One of the Most Important Competition Law Stories of Our Time
Think of every time you tap your card at a merchant's terminal. What looks like a seamless digital transaction is actually a multi-party financial arrangement involving your bank, the merchant's bank, and a card network like Visa or Mastercard sitting in the middle. Embedded in that arrangement is a fee you almost certainly never see: the interchange fee, paid by the merchant's bank to your bank for every transaction, and ultimately passed on to you as a consumer through higher retail prices.
For decades, merchants across the United States and around the world absorbed these fees as a cost of doing business, without fully understanding how those fees were set or whether the rules governing them were legally defensible. The answer, as it turned out, was deeply contested. The In re Payment Card Interchange Fee litigation, filed in 2005 and not finally resolved until 2025, became one of the longest antitrust cases in American legal history and produced a settlement of $5.6 billion, one of the largest in US antitrust law.
This article examines the interchange fee litigation through a comparative lens, analysing the structural competition concerns that gave rise to the US case, applying the equivalent framework of the Competition Act, 2002 to assess how Indian competition law would approach the same conduct, and examining the significant regulatory divergence between the US model of private enforcement and India's hybrid system of regulatory directives and CCI oversight.
The Four-Party Model: How Digital Payments Actually Work and Where Antitrust Concerns Arise
To understand the legal dispute, it is necessary to first understand the commercial architecture that gave rise to it. The digital payment system in its standard form operates through what practitioners call the four-party model, involving the cardholder, the merchant, the issuing bank (which issues the card to the cardholder), and the acquiring bank (which processes payments on behalf of the merchant), with a card network such as Visa or Mastercard sitting at the centre connecting all four parties.
The table below sets out the four-party model and the role of each participant.
Party | Role | Commercial Interest |
Cardholder | Uses the card to make purchases | Desires convenience, rewards, and a smooth payment experience |
Issuing Bank | Issues the card to the cardholder; receives interchange fee | Earns interchange fee on every transaction; wants high card usage |
Acquiring Bank | Processes payments for the merchant; pays interchange fee | Earns the Merchant Discount Rate less the interchange fee paid to the issuer |
Merchant | Accepts the card; bears the Merchant Discount Rate | Desires low transaction costs; captive to card network acceptance |
Card Network | Connects issuer and acquirer; sets interchange fee | Earns network fees; competes for bank membership and merchant acceptance |
The interchange fee is the amount paid by the acquiring bank to the issuing bank for every transaction. It is typically expressed as a percentage of the transaction value plus a flat fee. This fee is then embedded in the Merchant Discount Rate that the acquiring bank charges to the merchant. The critical antitrust concern is not that interchange fees exist, but that they are collectively set by the card networks rather than competitively negotiated between individual banks.
In a perfectly competitive market, individual banks would negotiate interchange fees independently, creating competitive pressure that drives fees toward the actual cost of the service. Because Visa and Mastercard mandate a default or fixed interchange rate that applies to all banks participating in their network, this creates what antitrust economists describe as a horizontal price floor. Merchants face a take-it-or-leave-it position: refusing the network means losing access to the overwhelming majority of consumers who carry Visa or Mastercard, a commercial impossibility for most businesses. This imbalance of bargaining power allows the networks to extract rents that would not survive competitive negotiation.
The Facts of the US Case: What the Merchants Alleged and What They Won
The plaintiffs in In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., No. 05-MD-1720, representing approximately 12 million merchants, alleged that Visa and Mastercard functioned as structural conspiracies with their member banks. By collectively setting the default interchange rate, the networks eliminated the need for banks to compete on price, creating an effective floor for transaction costs across the entire card payment system.
Beyond the fee-setting mechanism itself, the litigation specifically targeted the anti-steering rules that the networks imposed on merchants. These rules prevented merchants from offering discounts to customers who chose lower-cost payment methods, from displaying information about the fees associated with particular card types, and from directing customers toward payment alternatives that carried lower charges. The practical effect was a black box in which consumers remained unaware that their card reward programmes were effectively subsidised by higher retail prices paid by all customers, including those who paid with cash.
The table below summarises the key outcomes of the US litigation.
Relief Type | Detail | Significance |
Monetary settlement | $5.6 billion approved to compensate merchants for historical overcharges | One of the largest antitrust settlements in US legal history |
November 2025 injunctive settlement | Landmark reform settlement including rate caps, merchant buying groups, and surcharging freedom | Structural reform of the payment system going forward |
Rate caps | Swipe fees reduced by a specific percentage for five years | Directly addresses the price-fixing concern |
Merchant buying groups | Small merchants permitted to band together to negotiate better rates | Addresses the bargaining power imbalance for smaller merchants |
Surcharging freedom | Merchants explicitly permitted to charge customers for credit card use | Directly reverses the anti-steering rules that insulated networks from competitive pressure |
The 2025 injunctive settlement is particularly significant because it moves beyond compensating historical overcharges to reforming the structural rules that allowed those overcharges to occur. The surcharging freedom provision is a direct repudiation of the anti-steering rules that the networks had maintained for decades.
The Indian Competition Law Analysis: How the CCI Would Approach the Same Conduct
The Competition Commission of India would examine conduct equivalent to the US interchange fee arrangements through the framework of the Competition Act, 2002. Two primary provisions are directly engaged.
Section 3: Anti-Competitive Agreements
The core allegation in the US case, that banks collectively set a uniform interchange price through the card networks, falls squarely within Section 3(3) of the Competition Act, 2002. Section 3(3) provides that horizontal agreements, meaning agreements between enterprises engaged in similar trade that directly or indirectly determine purchase or sale prices, are presumed to have an Appreciable Adverse Effect on Competition. Unlike the US Rule of Reason analysis, which requires the plaintiff to affirmatively prove competitive harm, Section 3(3) creates a rebuttable presumption of AAEC, shifting the burden to the networks to justify their pricing arrangements.
The table below analyses the specific forms of conduct and their characterisation under Section 3.
Conduct | US Characterisation | Section 3 Characterisation |
Collective interchange fee setting | Horizontal price-fixing under Sherman Act Section 1 | Horizontal agreement presumed to have AAEC under Section 3(3) |
Honor All Cards rule | Vertical restraint; forced acceptance of premium cards as condition of basic service | Tie-in arrangement under Section 3(4); preventing competition from lower-cost alternatives |
Anti-steering rules | Suppression of competitive price information | Vertical restraint limiting merchant ability to direct consumer choice |
The Honor All Cards rule deserves specific analysis as a potential tie-in arrangement under Section 3(4). By requiring merchants to accept premium reward cards as a condition of accepting basic card services, the networks may be preventing competition from lower-cost local alternatives. This is a vertical restraint that, unlike the horizontal agreements under Section 3(3), requires the CCI to assess whether it causes an AAEC under the Rule of Reason framework applicable to vertical restraints.
Section 4: Abuse of Dominant Position
Visa and Mastercard hold significant market share in India's credit card payment market. Under Section 4, the CCI would assess whether this dominant position has been abused through unfair pricing under Section 4(2)(a), by imposing high interchange fees that do not reflect the actual cost of service, and through denial of market access under Section 4(2)(c), where anti-steering rules prevent merchants from directing customers toward local competitors like RuPay.
The table below sets out the Section 4 analysis.
Section 4 Provision | Alleged Conduct | CCI Assessment |
Section 4(2)(a): Unfair pricing | High interchange fees disproportionate to cost of service | CCI would assess whether fees exceed competitive levels and whether the excess is justified |
Section 4(2)(c): Denial of market access | Anti-steering rules preventing merchant redirection to local alternatives | Could be characterised as foreclosing market access for domestic payment networks |
Section 4(2)(e): Leveraging dominance | Using dominance in card network market to protect position in payment processing | Relevant where network rules entrench the Visa-Mastercard duopoly against domestic challengers |
The Indian Divergence: Regulatory Directives Versus Private Enforcement
The most significant difference between the US and Indian approaches to interchange fee competition concerns is the primary enforcement mechanism. The US framework, governed by the Sherman Antitrust Act, relies heavily on private class action suits in which affected merchants spend years in federal court proving anticompetitive harm under the Rule of Reason. India operates through a hybrid system of regulatory directives and CCI oversight that has produced structurally different outcomes.
The RBI's Interventionist Approach
The Reserve Bank of India has addressed interchange fee concerns through direct regulatory action rather than litigation. The Zero MDR Policy, mandated by the Ministry of Finance in December 2019, eliminated interchange fees for UPI and RuPay Debit transactions by executive fiat, removing the price-fixing concern for these payment methods entirely. The RBI Rationalisation of MDR (2017) directly caps MDR for debit cards based on merchant turnover, leaving significantly less room for the collective price-fixing allegations that drove the US litigation.
The table below compares the US and Indian enforcement approaches.
Dimension | United States | India |
Primary enforcement mechanism | Private class action under Sherman Act | Regulatory directives from RBI; CCI investigation |
Standard of proof | Rule of Reason; plaintiff must prove competitive harm | Section 3(3) presumption of AAEC; burden on networks to justify |
Monetary remedy | $5.6 billion settlement for historical losses | Structural regulatory intervention; no equivalent historical damages mechanism |
Structural remedy | Injunctive relief in 2025 settlement; surcharging freedom | Zero MDR by executive mandate; RBI price caps |
Timeline | 20 years of litigation (2005 to 2025) | Immediate regulatory response through RBI directives |
Jurisdictional filter | None; merchants may sue directly in federal court | Two-step process from CCI v. Bharti Airtel Ltd. (2019); sectoral regulator determines first |
The Two-Step Jurisdictional Process
In Competition Comm'n of India v. Bharti Airtel Ltd., (2019) 2 SCC 521, the Supreme Court of India established the two-step process for cases where both a sectoral regulator and the CCI have potential jurisdiction. The Court held that where a sectoral regulator such as the RBI exists, it must first determine the jurisdictional facts, specifically whether a technical breach of payment regulations has occurred. Only after this regulatory determination can the CCI exercise its power to investigate the competitive harm dimension.
This creates a Regulatory Filter that is unknown in the US, where merchants can sue Visa or Mastercard in federal court regardless of ongoing Federal Reserve proceedings. The practical effect is that even if the RBI has set interchange fee caps, the CCI retains jurisdiction to investigate whether the card networks are using other rules, not covered by the RBI's price caps, to foreclose competition. The two jurisdictions are complementary rather than exclusive.
The Competition Amendment Act 2023 and Settlement Mechanisms
With the Competition Amendment Act, 2023 becoming fully operational by 2025, India has introduced Settlement and Commitment mechanisms under new Sections 48A and 48B of the Competition Act. These provisions allow payment networks to offer changes to their conduct at an early stage of a CCI investigation, avoiding the twenty-year litigation cycles exemplified by MDL 1720. This aligns Indian practice with global injunctive relief standards while maintaining a significantly faster pace of resolution.
Landmark Cases Shaping the Regulatory Landscape
The table below summarises the key judicial and regulatory decisions that frame the Indian legal landscape for payment system competition.
Case or Regulatory Action | Forum and Year | Key Holding or Action | Significance |
CCI v. Bharti Airtel Ltd., (2019) 2 SCC 521 | Supreme Court of India, 2019 | Sectoral regulator has first right in technical issues; CCI retains jurisdiction for competition harm | Establishes the two-step jurisdictional process for payment network regulation |
Uber India Sys. Pvt. Ltd. v. CCI, (2019) 8 SCC 697 | Supreme Court of India, 2019 | CCI jurisdiction over platform-based pricing arrangements | Relevant to network pricing conduct in digital payment platforms |
Hoichoi Techs. Pvt. Ltd. v. RBI, (2024) SCC OnLine Cal 1532 | Calcutta High Court, 2024 | Addresses intersection of payment regulation and market access | Recent development on regulatory jurisdiction in digital payments |
RBI MDR Rationalisation Circular, December 2017 | Reserve Bank of India | Direct cap on MDR for debit cards by merchant turnover | Preemptive structural remedy removing much of the price-fixing concern |
Zero MDR Policy, December 2019 | Ministry of Finance | Mandate of zero fees for UPI and RuPay Debit transactions | Executive remedy eliminating interchange fee concern for domestic payment methods |
Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018) | US Supreme Court | Two-sided market analysis required for card network antitrust; anti-steering rules assessed under Rule of Reason | Raised the evidentiary bar for merchant plaintiffs in US interchange fee litigation |
Critical Assessment: What India Can Learn From the US Experience
The In re Payment Card Interchange Fee litigation offers India several important lessons that extend beyond the specific facts of the case.
The danger of pure reliance on regulation is the first lesson. While the Zero MDR policy has dramatically accelerated UPI adoption and delivered genuine benefits to merchants and consumers, mandating zero fees indefinitely may discourage long-term innovation in the credit card sector if banks cannot recover the actual costs of maintaining card infrastructure. The US experience suggests that a competitive market with appropriate constraints produces better outcomes than either unregulated price-fixing or administratively mandated zero pricing.
The need for vigilance over rule-making is the second. The RBI's price caps apply to specific fee categories, but card networks have numerous other rules, network participation requirements, exclusivity arrangements, and anti-steering mechanisms, that are not directly covered by price cap regulation. The CCI should monitor these rules closely for conduct that may limit merchant choice without falling within the explicit scope of existing regulatory directives.
The importance of multi-homing and domestic competition is the third. India's push for RuPay as a domestic alternative to Visa and Mastercard is an excellent antitrust remedy in structural terms, as it provides a domestic competitor that directly challenges the Visa-Mastercard duopoly. The existence of a viable domestic alternative with different cost structures and regulatory incentives breaks the network effects that allow duopolies to extract excessive rents. The US case suggests that competition in payment systems is ultimately about the freedom of the merchant to choose the most efficient payment path for their business, not merely about the level of any particular fee.
Conclusion: Competition in Payment Systems Is About Freedom, Not Just Price
The In re Payment Card Interchange Fee litigation demonstrates that even in mature, sophisticated markets, the network effect can facilitate price-fixing arrangements that impose significant costs on millions of merchants and, through higher retail prices, on every consumer. The twenty-year duration of the US litigation and the $5.6 billion settlement are a measure of how difficult it is to challenge these arrangements through private enforcement alone.
For India, the lessons are clear but not simple. The RBI's interventionist approach has delivered structural outcomes that US merchants required decades of litigation to achieve, but it has done so through regulatory fiat rather than competitive market discipline. The CCI's jurisdiction to investigate competition harm beyond the scope of RBI price caps creates an important complementary layer of oversight. The Competition Amendment Act 2023's settlement and commitment mechanisms provide a mechanism for resolving network conduct concerns far more quickly than the US courts managed.
The ultimate measure of competition in payment systems is not whether fees are low but whether the market is free, whether merchants can choose among payment methods, whether consumers can receive honest information about transaction costs, and whether domestic and international networks must genuinely compete for merchant and consumer acceptance. That freedom, not any particular fee level, is the appropriate goal of competition policy in this sector.
Frequently Asked Questions (FAQs) on Interchange Fee Antitrust Litigation and Indian Competition Law
What is an interchange fee and why is it an antitrust concern? An interchange fee is the amount paid by the acquiring bank to the issuing bank for every card transaction. Antitrust concerns arise because these fees are collectively set by card networks like Visa and Mastercard rather than competitively negotiated between individual banks, creating a horizontal price floor.
What was the In re Payment Card Interchange Fee litigation? It was a class action antitrust case filed in 2005 by approximately 12 million US merchants against Visa and Mastercard, alleging price-fixing through collective interchange fee setting and anticompetitive anti-steering rules. The case resulted in a $5.6 billion monetary settlement and a landmark 2025 injunctive settlement reforming the network rules.
How would the CCI analyse collective interchange fee setting under Indian competition law? Horizontal agreements between banks to collectively set interchange rates would fall under Section 3(3) of the Competition Act, 2002, which creates a rebuttable presumption of Appreciable Adverse Effect on Competition for price-fixing arrangements. Unlike the US Rule of Reason, the burden shifts to the networks to justify their pricing.
What is the Honor All Cards rule and how does it engage Section 3(4)? The Honor All Cards rule requires merchants to accept all cards on a network, including premium reward cards, as a condition of accepting basic card services. This may constitute a tie-in arrangement under Section 3(4), potentially foreclosing competition from lower-cost local alternatives.
How does India's regulatory approach differ from the US approach to interchange fees? The US relies primarily on private class action litigation under the Sherman Act. India employs a hybrid system of RBI regulatory directives, including the Zero MDR policy and MDR rationalisation caps, combined with CCI oversight of competition concerns not covered by price regulation. India's approach has produced structural remedies faster but through administrative rather than judicial channels.
What did the Supreme Court decide in CCI v. Bharti Airtel Ltd. regarding payment system regulation? The Supreme Court established a two-step jurisdictional process: where a sectoral regulator like the RBI exists, it must first determine the technical regulatory facts before the CCI exercises jurisdiction over the competition harm dimension. This creates a Regulatory Filter unknown in the US.
What is the Zero MDR policy and what competition concern does it address? The Zero MDR policy, mandated by the Ministry of Finance in December 2019, eliminated interchange fees for UPI and RuPay Debit transactions. It directly addressed the high merchant fee concern for domestic payment methods through executive action rather than litigation, producing an immediate structural remedy.
What settlement and commitment mechanisms did the Competition Amendment Act 2023 introduce? Sections 48A and 48B of the Competition Act, introduced by the 2023 Amendment, allow enterprises under CCI investigation to offer settlements by paying a determined penalty or to make behavioural commitments to address competition concerns at an early stage, avoiding the prolonged litigation cycles exemplified by the twenty-year US interchange fee case.
Key Takeaways: Everything You Must Know About Interchange Fee Antitrust Litigation and Indian Competition Law
The four-party model of digital payments creates a structural antitrust concern when card networks collectively set default interchange fees rather than allowing competitive negotiation between individual banks, effectively creating a horizontal price floor.
The In re Payment Card Interchange Fee litigation, filed in 2005 and resolved in 2025, produced a $5.6 billion monetary settlement and landmark structural reforms including rate caps, merchant buying groups, and explicit surcharging freedom.
Under Indian competition law, collective interchange fee setting would fall within Section 3(3) of the Competition Act, 2002, which presumes AAEC for horizontal price-fixing agreements and places the burden of justification on the networks.
The Honor All Cards rule may constitute a tie-in arrangement under Section 3(4) as a vertical restraint, and anti-steering rules may engage Section 4(2)(c) as a denial of market access to domestic alternatives like RuPay.
India's hybrid enforcement model, combining RBI regulatory directives including the Zero MDR policy and MDR rationalisation caps with CCI competition oversight, has produced structural remedies faster than the US private enforcement model but through administrative rather than judicial channels.
The two-step jurisdictional process established in CCI v. Bharti Airtel Ltd. (2019) requires sectoral regulators to address technical regulatory facts before the CCI exercises jurisdiction over competition harm, creating a Regulatory Filter absent in the US framework.
The Competition Amendment Act 2023's settlement and commitment mechanisms under Sections 48A and 48B enable payment networks to resolve competition concerns early in the regulatory process, avoiding the twenty-year litigation cycles seen in the US.
Pure reliance on regulatory directives risks discouraging long-term innovation in the credit sector if banks cannot recover costs; a balance between regulatory price constraints and competitive market discipline is necessary.
India's promotion of RuPay as a domestic alternative directly addresses the structural duopoly concern by providing a genuine competitive alternative to Visa and Mastercard with different cost structures and regulatory incentives.
Competition in payment systems is ultimately about the freedom of merchants to choose the most efficient payment path, not merely about any particular fee level; this principle should guide both CCI enforcement and RBI regulatory design.
References
Cases
In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., No. 05-MD-1720 (E.D.N.Y. Nov. 15, 2025) (Order granting preliminary approval of amended injunctive relief settlement).
In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 330 F.R.D. 11 (E.D.N.Y. 2019), aff'd sub nom. Fikes Wholesale, Inc. v. Visa U.S.A., Inc., 62 F.4th 704 (2d Cir. 2023).
Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018).
Competition Comm'n of India v. Bharti Airtel Ltd., (2019) 2 SCC 521.
Hoichoi Techs. Private Ltd. v. Reserve Bank of India, (2024) SCC OnLine Cal 1532.
Uber India Sys. Pvt. Ltd. v. Competition Comm'n of India, (2019) 8 SCC 697.
Statutes and Regulations
The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India).
The Competition (Amendment) Act, 2023, No. 9, Acts of Parliament, 2023 (India).
The Payment and Settlement Systems Act, 2007, No. 51, Acts of Parliament, 2007 (India).
Sherman Antitrust Act, 15 U.S.C. §§ 1 to 7 (United States).
Reserve Bank of India, Master Direction on Issuance and Conduct of Debit, Credit and Prepaid Cards, RBI/2022-23/92 (Apr. 21, 2022).
Reserve Bank of India, Circular on Rationalisation of Merchant Discount Rate (Dec. 6, 2017).
Ministry of Finance, Government of India, Press Release on Zero MDR Policy (Dec. 28, 2019).
Articles and Reports
K. Craig Wildfang and Ryan W. Marth, The Visa/Mastercard Interchange Fee Settlement: A Step Toward Competition, 28 Antitrust 78 (2013).
Ministry of Finance, Government of India, Report of the Committee on Digital Payments (Ratan Watal Committee) (2016).
Online Sources
Reserve Bank of India, Rationalisation of Merchant Discount Rate (MDR), https://www.rbi.org.in (last visited Feb. 2, 2026).
Competition Commission of India, Market Study on the Payment Systems Industry in India, https://www.cci.gov.in (last visited Jan. 30, 2026).
Official Settlement Website, In re Payment Card Interchange Fee Litigation, https://www.paymentcardsettlement.com (last visited Feb. 2, 2026).
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The Hidden Tax on Every Swipe: Understanding Why Interchange Fee Antitrust Litigation Is One of the Most Important Competition Law Stories of Our Time
Think of every time you tap your card at a merchant's terminal. What looks like a seamless digital transaction is actually a multi-party financial arrangement involving your bank, the merchant's bank, and a card network like Visa or Mastercard sitting in the middle. Embedded in that arrangement is a fee you almost certainly never see: the interchange fee, paid by the merchant's bank to your bank for every transaction, and ultimately passed on to you as a consumer through higher retail prices.
For decades, merchants across the United States and around the world absorbed these fees as a cost of doing business, without fully understanding how those fees were set or whether the rules governing them were legally defensible. The answer, as it turned out, was deeply contested. The In re Payment Card Interchange Fee litigation, filed in 2005 and not finally resolved until 2025, became one of the longest antitrust cases in American legal history and produced a settlement of $5.6 billion, one of the largest in US antitrust law.
This article examines the interchange fee litigation through a comparative lens, analysing the structural competition concerns that gave rise to the US case, applying the equivalent framework of the Competition Act, 2002 to assess how Indian competition law would approach the same conduct, and examining the significant regulatory divergence between the US model of private enforcement and India's hybrid system of regulatory directives and CCI oversight.
The Four-Party Model: How Digital Payments Actually Work and Where Antitrust Concerns Arise
To understand the legal dispute, it is necessary to first understand the commercial architecture that gave rise to it. The digital payment system in its standard form operates through what practitioners call the four-party model, involving the cardholder, the merchant, the issuing bank (which issues the card to the cardholder), and the acquiring bank (which processes payments on behalf of the merchant), with a card network such as Visa or Mastercard sitting at the centre connecting all four parties.
The table below sets out the four-party model and the role of each participant.
Party | Role | Commercial Interest |
Cardholder | Uses the card to make purchases | Desires convenience, rewards, and a smooth payment experience |
Issuing Bank | Issues the card to the cardholder; receives interchange fee | Earns interchange fee on every transaction; wants high card usage |
Acquiring Bank | Processes payments for the merchant; pays interchange fee | Earns the Merchant Discount Rate less the interchange fee paid to the issuer |
Merchant | Accepts the card; bears the Merchant Discount Rate | Desires low transaction costs; captive to card network acceptance |
Card Network | Connects issuer and acquirer; sets interchange fee | Earns network fees; competes for bank membership and merchant acceptance |
The interchange fee is the amount paid by the acquiring bank to the issuing bank for every transaction. It is typically expressed as a percentage of the transaction value plus a flat fee. This fee is then embedded in the Merchant Discount Rate that the acquiring bank charges to the merchant. The critical antitrust concern is not that interchange fees exist, but that they are collectively set by the card networks rather than competitively negotiated between individual banks.
In a perfectly competitive market, individual banks would negotiate interchange fees independently, creating competitive pressure that drives fees toward the actual cost of the service. Because Visa and Mastercard mandate a default or fixed interchange rate that applies to all banks participating in their network, this creates what antitrust economists describe as a horizontal price floor. Merchants face a take-it-or-leave-it position: refusing the network means losing access to the overwhelming majority of consumers who carry Visa or Mastercard, a commercial impossibility for most businesses. This imbalance of bargaining power allows the networks to extract rents that would not survive competitive negotiation.
The Facts of the US Case: What the Merchants Alleged and What They Won
The plaintiffs in In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., No. 05-MD-1720, representing approximately 12 million merchants, alleged that Visa and Mastercard functioned as structural conspiracies with their member banks. By collectively setting the default interchange rate, the networks eliminated the need for banks to compete on price, creating an effective floor for transaction costs across the entire card payment system.
Beyond the fee-setting mechanism itself, the litigation specifically targeted the anti-steering rules that the networks imposed on merchants. These rules prevented merchants from offering discounts to customers who chose lower-cost payment methods, from displaying information about the fees associated with particular card types, and from directing customers toward payment alternatives that carried lower charges. The practical effect was a black box in which consumers remained unaware that their card reward programmes were effectively subsidised by higher retail prices paid by all customers, including those who paid with cash.
The table below summarises the key outcomes of the US litigation.
Relief Type | Detail | Significance |
Monetary settlement | $5.6 billion approved to compensate merchants for historical overcharges | One of the largest antitrust settlements in US legal history |
November 2025 injunctive settlement | Landmark reform settlement including rate caps, merchant buying groups, and surcharging freedom | Structural reform of the payment system going forward |
Rate caps | Swipe fees reduced by a specific percentage for five years | Directly addresses the price-fixing concern |
Merchant buying groups | Small merchants permitted to band together to negotiate better rates | Addresses the bargaining power imbalance for smaller merchants |
Surcharging freedom | Merchants explicitly permitted to charge customers for credit card use | Directly reverses the anti-steering rules that insulated networks from competitive pressure |
The 2025 injunctive settlement is particularly significant because it moves beyond compensating historical overcharges to reforming the structural rules that allowed those overcharges to occur. The surcharging freedom provision is a direct repudiation of the anti-steering rules that the networks had maintained for decades.
The Indian Competition Law Analysis: How the CCI Would Approach the Same Conduct
The Competition Commission of India would examine conduct equivalent to the US interchange fee arrangements through the framework of the Competition Act, 2002. Two primary provisions are directly engaged.
Section 3: Anti-Competitive Agreements
The core allegation in the US case, that banks collectively set a uniform interchange price through the card networks, falls squarely within Section 3(3) of the Competition Act, 2002. Section 3(3) provides that horizontal agreements, meaning agreements between enterprises engaged in similar trade that directly or indirectly determine purchase or sale prices, are presumed to have an Appreciable Adverse Effect on Competition. Unlike the US Rule of Reason analysis, which requires the plaintiff to affirmatively prove competitive harm, Section 3(3) creates a rebuttable presumption of AAEC, shifting the burden to the networks to justify their pricing arrangements.
The table below analyses the specific forms of conduct and their characterisation under Section 3.
Conduct | US Characterisation | Section 3 Characterisation |
Collective interchange fee setting | Horizontal price-fixing under Sherman Act Section 1 | Horizontal agreement presumed to have AAEC under Section 3(3) |
Honor All Cards rule | Vertical restraint; forced acceptance of premium cards as condition of basic service | Tie-in arrangement under Section 3(4); preventing competition from lower-cost alternatives |
Anti-steering rules | Suppression of competitive price information | Vertical restraint limiting merchant ability to direct consumer choice |
The Honor All Cards rule deserves specific analysis as a potential tie-in arrangement under Section 3(4). By requiring merchants to accept premium reward cards as a condition of accepting basic card services, the networks may be preventing competition from lower-cost local alternatives. This is a vertical restraint that, unlike the horizontal agreements under Section 3(3), requires the CCI to assess whether it causes an AAEC under the Rule of Reason framework applicable to vertical restraints.
Section 4: Abuse of Dominant Position
Visa and Mastercard hold significant market share in India's credit card payment market. Under Section 4, the CCI would assess whether this dominant position has been abused through unfair pricing under Section 4(2)(a), by imposing high interchange fees that do not reflect the actual cost of service, and through denial of market access under Section 4(2)(c), where anti-steering rules prevent merchants from directing customers toward local competitors like RuPay.
The table below sets out the Section 4 analysis.
Section 4 Provision | Alleged Conduct | CCI Assessment |
Section 4(2)(a): Unfair pricing | High interchange fees disproportionate to cost of service | CCI would assess whether fees exceed competitive levels and whether the excess is justified |
Section 4(2)(c): Denial of market access | Anti-steering rules preventing merchant redirection to local alternatives | Could be characterised as foreclosing market access for domestic payment networks |
Section 4(2)(e): Leveraging dominance | Using dominance in card network market to protect position in payment processing | Relevant where network rules entrench the Visa-Mastercard duopoly against domestic challengers |
The Indian Divergence: Regulatory Directives Versus Private Enforcement
The most significant difference between the US and Indian approaches to interchange fee competition concerns is the primary enforcement mechanism. The US framework, governed by the Sherman Antitrust Act, relies heavily on private class action suits in which affected merchants spend years in federal court proving anticompetitive harm under the Rule of Reason. India operates through a hybrid system of regulatory directives and CCI oversight that has produced structurally different outcomes.
The RBI's Interventionist Approach
The Reserve Bank of India has addressed interchange fee concerns through direct regulatory action rather than litigation. The Zero MDR Policy, mandated by the Ministry of Finance in December 2019, eliminated interchange fees for UPI and RuPay Debit transactions by executive fiat, removing the price-fixing concern for these payment methods entirely. The RBI Rationalisation of MDR (2017) directly caps MDR for debit cards based on merchant turnover, leaving significantly less room for the collective price-fixing allegations that drove the US litigation.
The table below compares the US and Indian enforcement approaches.
Dimension | United States | India |
Primary enforcement mechanism | Private class action under Sherman Act | Regulatory directives from RBI; CCI investigation |
Standard of proof | Rule of Reason; plaintiff must prove competitive harm | Section 3(3) presumption of AAEC; burden on networks to justify |
Monetary remedy | $5.6 billion settlement for historical losses | Structural regulatory intervention; no equivalent historical damages mechanism |
Structural remedy | Injunctive relief in 2025 settlement; surcharging freedom | Zero MDR by executive mandate; RBI price caps |
Timeline | 20 years of litigation (2005 to 2025) | Immediate regulatory response through RBI directives |
Jurisdictional filter | None; merchants may sue directly in federal court | Two-step process from CCI v. Bharti Airtel Ltd. (2019); sectoral regulator determines first |
The Two-Step Jurisdictional Process
In Competition Comm'n of India v. Bharti Airtel Ltd., (2019) 2 SCC 521, the Supreme Court of India established the two-step process for cases where both a sectoral regulator and the CCI have potential jurisdiction. The Court held that where a sectoral regulator such as the RBI exists, it must first determine the jurisdictional facts, specifically whether a technical breach of payment regulations has occurred. Only after this regulatory determination can the CCI exercise its power to investigate the competitive harm dimension.
This creates a Regulatory Filter that is unknown in the US, where merchants can sue Visa or Mastercard in federal court regardless of ongoing Federal Reserve proceedings. The practical effect is that even if the RBI has set interchange fee caps, the CCI retains jurisdiction to investigate whether the card networks are using other rules, not covered by the RBI's price caps, to foreclose competition. The two jurisdictions are complementary rather than exclusive.
The Competition Amendment Act 2023 and Settlement Mechanisms
With the Competition Amendment Act, 2023 becoming fully operational by 2025, India has introduced Settlement and Commitment mechanisms under new Sections 48A and 48B of the Competition Act. These provisions allow payment networks to offer changes to their conduct at an early stage of a CCI investigation, avoiding the twenty-year litigation cycles exemplified by MDL 1720. This aligns Indian practice with global injunctive relief standards while maintaining a significantly faster pace of resolution.
Landmark Cases Shaping the Regulatory Landscape
The table below summarises the key judicial and regulatory decisions that frame the Indian legal landscape for payment system competition.
Case or Regulatory Action | Forum and Year | Key Holding or Action | Significance |
CCI v. Bharti Airtel Ltd., (2019) 2 SCC 521 | Supreme Court of India, 2019 | Sectoral regulator has first right in technical issues; CCI retains jurisdiction for competition harm | Establishes the two-step jurisdictional process for payment network regulation |
Uber India Sys. Pvt. Ltd. v. CCI, (2019) 8 SCC 697 | Supreme Court of India, 2019 | CCI jurisdiction over platform-based pricing arrangements | Relevant to network pricing conduct in digital payment platforms |
Hoichoi Techs. Pvt. Ltd. v. RBI, (2024) SCC OnLine Cal 1532 | Calcutta High Court, 2024 | Addresses intersection of payment regulation and market access | Recent development on regulatory jurisdiction in digital payments |
RBI MDR Rationalisation Circular, December 2017 | Reserve Bank of India | Direct cap on MDR for debit cards by merchant turnover | Preemptive structural remedy removing much of the price-fixing concern |
Zero MDR Policy, December 2019 | Ministry of Finance | Mandate of zero fees for UPI and RuPay Debit transactions | Executive remedy eliminating interchange fee concern for domestic payment methods |
Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018) | US Supreme Court | Two-sided market analysis required for card network antitrust; anti-steering rules assessed under Rule of Reason | Raised the evidentiary bar for merchant plaintiffs in US interchange fee litigation |
Critical Assessment: What India Can Learn From the US Experience
The In re Payment Card Interchange Fee litigation offers India several important lessons that extend beyond the specific facts of the case.
The danger of pure reliance on regulation is the first lesson. While the Zero MDR policy has dramatically accelerated UPI adoption and delivered genuine benefits to merchants and consumers, mandating zero fees indefinitely may discourage long-term innovation in the credit card sector if banks cannot recover the actual costs of maintaining card infrastructure. The US experience suggests that a competitive market with appropriate constraints produces better outcomes than either unregulated price-fixing or administratively mandated zero pricing.
The need for vigilance over rule-making is the second. The RBI's price caps apply to specific fee categories, but card networks have numerous other rules, network participation requirements, exclusivity arrangements, and anti-steering mechanisms, that are not directly covered by price cap regulation. The CCI should monitor these rules closely for conduct that may limit merchant choice without falling within the explicit scope of existing regulatory directives.
The importance of multi-homing and domestic competition is the third. India's push for RuPay as a domestic alternative to Visa and Mastercard is an excellent antitrust remedy in structural terms, as it provides a domestic competitor that directly challenges the Visa-Mastercard duopoly. The existence of a viable domestic alternative with different cost structures and regulatory incentives breaks the network effects that allow duopolies to extract excessive rents. The US case suggests that competition in payment systems is ultimately about the freedom of the merchant to choose the most efficient payment path for their business, not merely about the level of any particular fee.
Conclusion: Competition in Payment Systems Is About Freedom, Not Just Price
The In re Payment Card Interchange Fee litigation demonstrates that even in mature, sophisticated markets, the network effect can facilitate price-fixing arrangements that impose significant costs on millions of merchants and, through higher retail prices, on every consumer. The twenty-year duration of the US litigation and the $5.6 billion settlement are a measure of how difficult it is to challenge these arrangements through private enforcement alone.
For India, the lessons are clear but not simple. The RBI's interventionist approach has delivered structural outcomes that US merchants required decades of litigation to achieve, but it has done so through regulatory fiat rather than competitive market discipline. The CCI's jurisdiction to investigate competition harm beyond the scope of RBI price caps creates an important complementary layer of oversight. The Competition Amendment Act 2023's settlement and commitment mechanisms provide a mechanism for resolving network conduct concerns far more quickly than the US courts managed.
The ultimate measure of competition in payment systems is not whether fees are low but whether the market is free, whether merchants can choose among payment methods, whether consumers can receive honest information about transaction costs, and whether domestic and international networks must genuinely compete for merchant and consumer acceptance. That freedom, not any particular fee level, is the appropriate goal of competition policy in this sector.
Frequently Asked Questions (FAQs) on Interchange Fee Antitrust Litigation and Indian Competition Law
What is an interchange fee and why is it an antitrust concern? An interchange fee is the amount paid by the acquiring bank to the issuing bank for every card transaction. Antitrust concerns arise because these fees are collectively set by card networks like Visa and Mastercard rather than competitively negotiated between individual banks, creating a horizontal price floor.
What was the In re Payment Card Interchange Fee litigation? It was a class action antitrust case filed in 2005 by approximately 12 million US merchants against Visa and Mastercard, alleging price-fixing through collective interchange fee setting and anticompetitive anti-steering rules. The case resulted in a $5.6 billion monetary settlement and a landmark 2025 injunctive settlement reforming the network rules.
How would the CCI analyse collective interchange fee setting under Indian competition law? Horizontal agreements between banks to collectively set interchange rates would fall under Section 3(3) of the Competition Act, 2002, which creates a rebuttable presumption of Appreciable Adverse Effect on Competition for price-fixing arrangements. Unlike the US Rule of Reason, the burden shifts to the networks to justify their pricing.
What is the Honor All Cards rule and how does it engage Section 3(4)? The Honor All Cards rule requires merchants to accept all cards on a network, including premium reward cards, as a condition of accepting basic card services. This may constitute a tie-in arrangement under Section 3(4), potentially foreclosing competition from lower-cost local alternatives.
How does India's regulatory approach differ from the US approach to interchange fees? The US relies primarily on private class action litigation under the Sherman Act. India employs a hybrid system of RBI regulatory directives, including the Zero MDR policy and MDR rationalisation caps, combined with CCI oversight of competition concerns not covered by price regulation. India's approach has produced structural remedies faster but through administrative rather than judicial channels.
What did the Supreme Court decide in CCI v. Bharti Airtel Ltd. regarding payment system regulation? The Supreme Court established a two-step jurisdictional process: where a sectoral regulator like the RBI exists, it must first determine the technical regulatory facts before the CCI exercises jurisdiction over the competition harm dimension. This creates a Regulatory Filter unknown in the US.
What is the Zero MDR policy and what competition concern does it address? The Zero MDR policy, mandated by the Ministry of Finance in December 2019, eliminated interchange fees for UPI and RuPay Debit transactions. It directly addressed the high merchant fee concern for domestic payment methods through executive action rather than litigation, producing an immediate structural remedy.
What settlement and commitment mechanisms did the Competition Amendment Act 2023 introduce? Sections 48A and 48B of the Competition Act, introduced by the 2023 Amendment, allow enterprises under CCI investigation to offer settlements by paying a determined penalty or to make behavioural commitments to address competition concerns at an early stage, avoiding the prolonged litigation cycles exemplified by the twenty-year US interchange fee case.
Key Takeaways: Everything You Must Know About Interchange Fee Antitrust Litigation and Indian Competition Law
The four-party model of digital payments creates a structural antitrust concern when card networks collectively set default interchange fees rather than allowing competitive negotiation between individual banks, effectively creating a horizontal price floor.
The In re Payment Card Interchange Fee litigation, filed in 2005 and resolved in 2025, produced a $5.6 billion monetary settlement and landmark structural reforms including rate caps, merchant buying groups, and explicit surcharging freedom.
Under Indian competition law, collective interchange fee setting would fall within Section 3(3) of the Competition Act, 2002, which presumes AAEC for horizontal price-fixing agreements and places the burden of justification on the networks.
The Honor All Cards rule may constitute a tie-in arrangement under Section 3(4) as a vertical restraint, and anti-steering rules may engage Section 4(2)(c) as a denial of market access to domestic alternatives like RuPay.
India's hybrid enforcement model, combining RBI regulatory directives including the Zero MDR policy and MDR rationalisation caps with CCI competition oversight, has produced structural remedies faster than the US private enforcement model but through administrative rather than judicial channels.
The two-step jurisdictional process established in CCI v. Bharti Airtel Ltd. (2019) requires sectoral regulators to address technical regulatory facts before the CCI exercises jurisdiction over competition harm, creating a Regulatory Filter absent in the US framework.
The Competition Amendment Act 2023's settlement and commitment mechanisms under Sections 48A and 48B enable payment networks to resolve competition concerns early in the regulatory process, avoiding the twenty-year litigation cycles seen in the US.
Pure reliance on regulatory directives risks discouraging long-term innovation in the credit sector if banks cannot recover costs; a balance between regulatory price constraints and competitive market discipline is necessary.
India's promotion of RuPay as a domestic alternative directly addresses the structural duopoly concern by providing a genuine competitive alternative to Visa and Mastercard with different cost structures and regulatory incentives.
Competition in payment systems is ultimately about the freedom of merchants to choose the most efficient payment path, not merely about any particular fee level; this principle should guide both CCI enforcement and RBI regulatory design.
References
Cases
In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., No. 05-MD-1720 (E.D.N.Y. Nov. 15, 2025) (Order granting preliminary approval of amended injunctive relief settlement).
In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 330 F.R.D. 11 (E.D.N.Y. 2019), aff'd sub nom. Fikes Wholesale, Inc. v. Visa U.S.A., Inc., 62 F.4th 704 (2d Cir. 2023).
Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018).
Competition Comm'n of India v. Bharti Airtel Ltd., (2019) 2 SCC 521.
Hoichoi Techs. Private Ltd. v. Reserve Bank of India, (2024) SCC OnLine Cal 1532.
Uber India Sys. Pvt. Ltd. v. Competition Comm'n of India, (2019) 8 SCC 697.
Statutes and Regulations
The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India).
The Competition (Amendment) Act, 2023, No. 9, Acts of Parliament, 2023 (India).
The Payment and Settlement Systems Act, 2007, No. 51, Acts of Parliament, 2007 (India).
Sherman Antitrust Act, 15 U.S.C. §§ 1 to 7 (United States).
Reserve Bank of India, Master Direction on Issuance and Conduct of Debit, Credit and Prepaid Cards, RBI/2022-23/92 (Apr. 21, 2022).
Reserve Bank of India, Circular on Rationalisation of Merchant Discount Rate (Dec. 6, 2017).
Ministry of Finance, Government of India, Press Release on Zero MDR Policy (Dec. 28, 2019).
Articles and Reports
K. Craig Wildfang and Ryan W. Marth, The Visa/Mastercard Interchange Fee Settlement: A Step Toward Competition, 28 Antitrust 78 (2013).
Ministry of Finance, Government of India, Report of the Committee on Digital Payments (Ratan Watal Committee) (2016).
Online Sources
Reserve Bank of India, Rationalisation of Merchant Discount Rate (MDR), https://www.rbi.org.in (last visited Feb. 2, 2026).
Competition Commission of India, Market Study on the Payment Systems Industry in India, https://www.cci.gov.in (last visited Jan. 30, 2026).
Official Settlement Website, In re Payment Card Interchange Fee Litigation, https://www.paymentcardsettlement.com (last visited Feb. 2, 2026).
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The Hidden Tax on Every Swipe: Understanding Why Interchange Fee Antitrust Litigation Is One of the Most Important Competition Law Stories of Our Time
Think of every time you tap your card at a merchant's terminal. What looks like a seamless digital transaction is actually a multi-party financial arrangement involving your bank, the merchant's bank, and a card network like Visa or Mastercard sitting in the middle. Embedded in that arrangement is a fee you almost certainly never see: the interchange fee, paid by the merchant's bank to your bank for every transaction, and ultimately passed on to you as a consumer through higher retail prices.
For decades, merchants across the United States and around the world absorbed these fees as a cost of doing business, without fully understanding how those fees were set or whether the rules governing them were legally defensible. The answer, as it turned out, was deeply contested. The In re Payment Card Interchange Fee litigation, filed in 2005 and not finally resolved until 2025, became one of the longest antitrust cases in American legal history and produced a settlement of $5.6 billion, one of the largest in US antitrust law.
This article examines the interchange fee litigation through a comparative lens, analysing the structural competition concerns that gave rise to the US case, applying the equivalent framework of the Competition Act, 2002 to assess how Indian competition law would approach the same conduct, and examining the significant regulatory divergence between the US model of private enforcement and India's hybrid system of regulatory directives and CCI oversight.
The Four-Party Model: How Digital Payments Actually Work and Where Antitrust Concerns Arise
To understand the legal dispute, it is necessary to first understand the commercial architecture that gave rise to it. The digital payment system in its standard form operates through what practitioners call the four-party model, involving the cardholder, the merchant, the issuing bank (which issues the card to the cardholder), and the acquiring bank (which processes payments on behalf of the merchant), with a card network such as Visa or Mastercard sitting at the centre connecting all four parties.
The table below sets out the four-party model and the role of each participant.
Party | Role | Commercial Interest |
Cardholder | Uses the card to make purchases | Desires convenience, rewards, and a smooth payment experience |
Issuing Bank | Issues the card to the cardholder; receives interchange fee | Earns interchange fee on every transaction; wants high card usage |
Acquiring Bank | Processes payments for the merchant; pays interchange fee | Earns the Merchant Discount Rate less the interchange fee paid to the issuer |
Merchant | Accepts the card; bears the Merchant Discount Rate | Desires low transaction costs; captive to card network acceptance |
Card Network | Connects issuer and acquirer; sets interchange fee | Earns network fees; competes for bank membership and merchant acceptance |
The interchange fee is the amount paid by the acquiring bank to the issuing bank for every transaction. It is typically expressed as a percentage of the transaction value plus a flat fee. This fee is then embedded in the Merchant Discount Rate that the acquiring bank charges to the merchant. The critical antitrust concern is not that interchange fees exist, but that they are collectively set by the card networks rather than competitively negotiated between individual banks.
In a perfectly competitive market, individual banks would negotiate interchange fees independently, creating competitive pressure that drives fees toward the actual cost of the service. Because Visa and Mastercard mandate a default or fixed interchange rate that applies to all banks participating in their network, this creates what antitrust economists describe as a horizontal price floor. Merchants face a take-it-or-leave-it position: refusing the network means losing access to the overwhelming majority of consumers who carry Visa or Mastercard, a commercial impossibility for most businesses. This imbalance of bargaining power allows the networks to extract rents that would not survive competitive negotiation.
The Facts of the US Case: What the Merchants Alleged and What They Won
The plaintiffs in In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., No. 05-MD-1720, representing approximately 12 million merchants, alleged that Visa and Mastercard functioned as structural conspiracies with their member banks. By collectively setting the default interchange rate, the networks eliminated the need for banks to compete on price, creating an effective floor for transaction costs across the entire card payment system.
Beyond the fee-setting mechanism itself, the litigation specifically targeted the anti-steering rules that the networks imposed on merchants. These rules prevented merchants from offering discounts to customers who chose lower-cost payment methods, from displaying information about the fees associated with particular card types, and from directing customers toward payment alternatives that carried lower charges. The practical effect was a black box in which consumers remained unaware that their card reward programmes were effectively subsidised by higher retail prices paid by all customers, including those who paid with cash.
The table below summarises the key outcomes of the US litigation.
Relief Type | Detail | Significance |
Monetary settlement | $5.6 billion approved to compensate merchants for historical overcharges | One of the largest antitrust settlements in US legal history |
November 2025 injunctive settlement | Landmark reform settlement including rate caps, merchant buying groups, and surcharging freedom | Structural reform of the payment system going forward |
Rate caps | Swipe fees reduced by a specific percentage for five years | Directly addresses the price-fixing concern |
Merchant buying groups | Small merchants permitted to band together to negotiate better rates | Addresses the bargaining power imbalance for smaller merchants |
Surcharging freedom | Merchants explicitly permitted to charge customers for credit card use | Directly reverses the anti-steering rules that insulated networks from competitive pressure |
The 2025 injunctive settlement is particularly significant because it moves beyond compensating historical overcharges to reforming the structural rules that allowed those overcharges to occur. The surcharging freedom provision is a direct repudiation of the anti-steering rules that the networks had maintained for decades.
The Indian Competition Law Analysis: How the CCI Would Approach the Same Conduct
The Competition Commission of India would examine conduct equivalent to the US interchange fee arrangements through the framework of the Competition Act, 2002. Two primary provisions are directly engaged.
Section 3: Anti-Competitive Agreements
The core allegation in the US case, that banks collectively set a uniform interchange price through the card networks, falls squarely within Section 3(3) of the Competition Act, 2002. Section 3(3) provides that horizontal agreements, meaning agreements between enterprises engaged in similar trade that directly or indirectly determine purchase or sale prices, are presumed to have an Appreciable Adverse Effect on Competition. Unlike the US Rule of Reason analysis, which requires the plaintiff to affirmatively prove competitive harm, Section 3(3) creates a rebuttable presumption of AAEC, shifting the burden to the networks to justify their pricing arrangements.
The table below analyses the specific forms of conduct and their characterisation under Section 3.
Conduct | US Characterisation | Section 3 Characterisation |
Collective interchange fee setting | Horizontal price-fixing under Sherman Act Section 1 | Horizontal agreement presumed to have AAEC under Section 3(3) |
Honor All Cards rule | Vertical restraint; forced acceptance of premium cards as condition of basic service | Tie-in arrangement under Section 3(4); preventing competition from lower-cost alternatives |
Anti-steering rules | Suppression of competitive price information | Vertical restraint limiting merchant ability to direct consumer choice |
The Honor All Cards rule deserves specific analysis as a potential tie-in arrangement under Section 3(4). By requiring merchants to accept premium reward cards as a condition of accepting basic card services, the networks may be preventing competition from lower-cost local alternatives. This is a vertical restraint that, unlike the horizontal agreements under Section 3(3), requires the CCI to assess whether it causes an AAEC under the Rule of Reason framework applicable to vertical restraints.
Section 4: Abuse of Dominant Position
Visa and Mastercard hold significant market share in India's credit card payment market. Under Section 4, the CCI would assess whether this dominant position has been abused through unfair pricing under Section 4(2)(a), by imposing high interchange fees that do not reflect the actual cost of service, and through denial of market access under Section 4(2)(c), where anti-steering rules prevent merchants from directing customers toward local competitors like RuPay.
The table below sets out the Section 4 analysis.
Section 4 Provision | Alleged Conduct | CCI Assessment |
Section 4(2)(a): Unfair pricing | High interchange fees disproportionate to cost of service | CCI would assess whether fees exceed competitive levels and whether the excess is justified |
Section 4(2)(c): Denial of market access | Anti-steering rules preventing merchant redirection to local alternatives | Could be characterised as foreclosing market access for domestic payment networks |
Section 4(2)(e): Leveraging dominance | Using dominance in card network market to protect position in payment processing | Relevant where network rules entrench the Visa-Mastercard duopoly against domestic challengers |
The Indian Divergence: Regulatory Directives Versus Private Enforcement
The most significant difference between the US and Indian approaches to interchange fee competition concerns is the primary enforcement mechanism. The US framework, governed by the Sherman Antitrust Act, relies heavily on private class action suits in which affected merchants spend years in federal court proving anticompetitive harm under the Rule of Reason. India operates through a hybrid system of regulatory directives and CCI oversight that has produced structurally different outcomes.
The RBI's Interventionist Approach
The Reserve Bank of India has addressed interchange fee concerns through direct regulatory action rather than litigation. The Zero MDR Policy, mandated by the Ministry of Finance in December 2019, eliminated interchange fees for UPI and RuPay Debit transactions by executive fiat, removing the price-fixing concern for these payment methods entirely. The RBI Rationalisation of MDR (2017) directly caps MDR for debit cards based on merchant turnover, leaving significantly less room for the collective price-fixing allegations that drove the US litigation.
The table below compares the US and Indian enforcement approaches.
Dimension | United States | India |
Primary enforcement mechanism | Private class action under Sherman Act | Regulatory directives from RBI; CCI investigation |
Standard of proof | Rule of Reason; plaintiff must prove competitive harm | Section 3(3) presumption of AAEC; burden on networks to justify |
Monetary remedy | $5.6 billion settlement for historical losses | Structural regulatory intervention; no equivalent historical damages mechanism |
Structural remedy | Injunctive relief in 2025 settlement; surcharging freedom | Zero MDR by executive mandate; RBI price caps |
Timeline | 20 years of litigation (2005 to 2025) | Immediate regulatory response through RBI directives |
Jurisdictional filter | None; merchants may sue directly in federal court | Two-step process from CCI v. Bharti Airtel Ltd. (2019); sectoral regulator determines first |
The Two-Step Jurisdictional Process
In Competition Comm'n of India v. Bharti Airtel Ltd., (2019) 2 SCC 521, the Supreme Court of India established the two-step process for cases where both a sectoral regulator and the CCI have potential jurisdiction. The Court held that where a sectoral regulator such as the RBI exists, it must first determine the jurisdictional facts, specifically whether a technical breach of payment regulations has occurred. Only after this regulatory determination can the CCI exercise its power to investigate the competitive harm dimension.
This creates a Regulatory Filter that is unknown in the US, where merchants can sue Visa or Mastercard in federal court regardless of ongoing Federal Reserve proceedings. The practical effect is that even if the RBI has set interchange fee caps, the CCI retains jurisdiction to investigate whether the card networks are using other rules, not covered by the RBI's price caps, to foreclose competition. The two jurisdictions are complementary rather than exclusive.
The Competition Amendment Act 2023 and Settlement Mechanisms
With the Competition Amendment Act, 2023 becoming fully operational by 2025, India has introduced Settlement and Commitment mechanisms under new Sections 48A and 48B of the Competition Act. These provisions allow payment networks to offer changes to their conduct at an early stage of a CCI investigation, avoiding the twenty-year litigation cycles exemplified by MDL 1720. This aligns Indian practice with global injunctive relief standards while maintaining a significantly faster pace of resolution.
Landmark Cases Shaping the Regulatory Landscape
The table below summarises the key judicial and regulatory decisions that frame the Indian legal landscape for payment system competition.
Case or Regulatory Action | Forum and Year | Key Holding or Action | Significance |
CCI v. Bharti Airtel Ltd., (2019) 2 SCC 521 | Supreme Court of India, 2019 | Sectoral regulator has first right in technical issues; CCI retains jurisdiction for competition harm | Establishes the two-step jurisdictional process for payment network regulation |
Uber India Sys. Pvt. Ltd. v. CCI, (2019) 8 SCC 697 | Supreme Court of India, 2019 | CCI jurisdiction over platform-based pricing arrangements | Relevant to network pricing conduct in digital payment platforms |
Hoichoi Techs. Pvt. Ltd. v. RBI, (2024) SCC OnLine Cal 1532 | Calcutta High Court, 2024 | Addresses intersection of payment regulation and market access | Recent development on regulatory jurisdiction in digital payments |
RBI MDR Rationalisation Circular, December 2017 | Reserve Bank of India | Direct cap on MDR for debit cards by merchant turnover | Preemptive structural remedy removing much of the price-fixing concern |
Zero MDR Policy, December 2019 | Ministry of Finance | Mandate of zero fees for UPI and RuPay Debit transactions | Executive remedy eliminating interchange fee concern for domestic payment methods |
Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018) | US Supreme Court | Two-sided market analysis required for card network antitrust; anti-steering rules assessed under Rule of Reason | Raised the evidentiary bar for merchant plaintiffs in US interchange fee litigation |
Critical Assessment: What India Can Learn From the US Experience
The In re Payment Card Interchange Fee litigation offers India several important lessons that extend beyond the specific facts of the case.
The danger of pure reliance on regulation is the first lesson. While the Zero MDR policy has dramatically accelerated UPI adoption and delivered genuine benefits to merchants and consumers, mandating zero fees indefinitely may discourage long-term innovation in the credit card sector if banks cannot recover the actual costs of maintaining card infrastructure. The US experience suggests that a competitive market with appropriate constraints produces better outcomes than either unregulated price-fixing or administratively mandated zero pricing.
The need for vigilance over rule-making is the second. The RBI's price caps apply to specific fee categories, but card networks have numerous other rules, network participation requirements, exclusivity arrangements, and anti-steering mechanisms, that are not directly covered by price cap regulation. The CCI should monitor these rules closely for conduct that may limit merchant choice without falling within the explicit scope of existing regulatory directives.
The importance of multi-homing and domestic competition is the third. India's push for RuPay as a domestic alternative to Visa and Mastercard is an excellent antitrust remedy in structural terms, as it provides a domestic competitor that directly challenges the Visa-Mastercard duopoly. The existence of a viable domestic alternative with different cost structures and regulatory incentives breaks the network effects that allow duopolies to extract excessive rents. The US case suggests that competition in payment systems is ultimately about the freedom of the merchant to choose the most efficient payment path for their business, not merely about the level of any particular fee.
Conclusion: Competition in Payment Systems Is About Freedom, Not Just Price
The In re Payment Card Interchange Fee litigation demonstrates that even in mature, sophisticated markets, the network effect can facilitate price-fixing arrangements that impose significant costs on millions of merchants and, through higher retail prices, on every consumer. The twenty-year duration of the US litigation and the $5.6 billion settlement are a measure of how difficult it is to challenge these arrangements through private enforcement alone.
For India, the lessons are clear but not simple. The RBI's interventionist approach has delivered structural outcomes that US merchants required decades of litigation to achieve, but it has done so through regulatory fiat rather than competitive market discipline. The CCI's jurisdiction to investigate competition harm beyond the scope of RBI price caps creates an important complementary layer of oversight. The Competition Amendment Act 2023's settlement and commitment mechanisms provide a mechanism for resolving network conduct concerns far more quickly than the US courts managed.
The ultimate measure of competition in payment systems is not whether fees are low but whether the market is free, whether merchants can choose among payment methods, whether consumers can receive honest information about transaction costs, and whether domestic and international networks must genuinely compete for merchant and consumer acceptance. That freedom, not any particular fee level, is the appropriate goal of competition policy in this sector.
Frequently Asked Questions (FAQs) on Interchange Fee Antitrust Litigation and Indian Competition Law
What is an interchange fee and why is it an antitrust concern? An interchange fee is the amount paid by the acquiring bank to the issuing bank for every card transaction. Antitrust concerns arise because these fees are collectively set by card networks like Visa and Mastercard rather than competitively negotiated between individual banks, creating a horizontal price floor.
What was the In re Payment Card Interchange Fee litigation? It was a class action antitrust case filed in 2005 by approximately 12 million US merchants against Visa and Mastercard, alleging price-fixing through collective interchange fee setting and anticompetitive anti-steering rules. The case resulted in a $5.6 billion monetary settlement and a landmark 2025 injunctive settlement reforming the network rules.
How would the CCI analyse collective interchange fee setting under Indian competition law? Horizontal agreements between banks to collectively set interchange rates would fall under Section 3(3) of the Competition Act, 2002, which creates a rebuttable presumption of Appreciable Adverse Effect on Competition for price-fixing arrangements. Unlike the US Rule of Reason, the burden shifts to the networks to justify their pricing.
What is the Honor All Cards rule and how does it engage Section 3(4)? The Honor All Cards rule requires merchants to accept all cards on a network, including premium reward cards, as a condition of accepting basic card services. This may constitute a tie-in arrangement under Section 3(4), potentially foreclosing competition from lower-cost local alternatives.
How does India's regulatory approach differ from the US approach to interchange fees? The US relies primarily on private class action litigation under the Sherman Act. India employs a hybrid system of RBI regulatory directives, including the Zero MDR policy and MDR rationalisation caps, combined with CCI oversight of competition concerns not covered by price regulation. India's approach has produced structural remedies faster but through administrative rather than judicial channels.
What did the Supreme Court decide in CCI v. Bharti Airtel Ltd. regarding payment system regulation? The Supreme Court established a two-step jurisdictional process: where a sectoral regulator like the RBI exists, it must first determine the technical regulatory facts before the CCI exercises jurisdiction over the competition harm dimension. This creates a Regulatory Filter unknown in the US.
What is the Zero MDR policy and what competition concern does it address? The Zero MDR policy, mandated by the Ministry of Finance in December 2019, eliminated interchange fees for UPI and RuPay Debit transactions. It directly addressed the high merchant fee concern for domestic payment methods through executive action rather than litigation, producing an immediate structural remedy.
What settlement and commitment mechanisms did the Competition Amendment Act 2023 introduce? Sections 48A and 48B of the Competition Act, introduced by the 2023 Amendment, allow enterprises under CCI investigation to offer settlements by paying a determined penalty or to make behavioural commitments to address competition concerns at an early stage, avoiding the prolonged litigation cycles exemplified by the twenty-year US interchange fee case.
Key Takeaways: Everything You Must Know About Interchange Fee Antitrust Litigation and Indian Competition Law
The four-party model of digital payments creates a structural antitrust concern when card networks collectively set default interchange fees rather than allowing competitive negotiation between individual banks, effectively creating a horizontal price floor.
The In re Payment Card Interchange Fee litigation, filed in 2005 and resolved in 2025, produced a $5.6 billion monetary settlement and landmark structural reforms including rate caps, merchant buying groups, and explicit surcharging freedom.
Under Indian competition law, collective interchange fee setting would fall within Section 3(3) of the Competition Act, 2002, which presumes AAEC for horizontal price-fixing agreements and places the burden of justification on the networks.
The Honor All Cards rule may constitute a tie-in arrangement under Section 3(4) as a vertical restraint, and anti-steering rules may engage Section 4(2)(c) as a denial of market access to domestic alternatives like RuPay.
India's hybrid enforcement model, combining RBI regulatory directives including the Zero MDR policy and MDR rationalisation caps with CCI competition oversight, has produced structural remedies faster than the US private enforcement model but through administrative rather than judicial channels.
The two-step jurisdictional process established in CCI v. Bharti Airtel Ltd. (2019) requires sectoral regulators to address technical regulatory facts before the CCI exercises jurisdiction over competition harm, creating a Regulatory Filter absent in the US framework.
The Competition Amendment Act 2023's settlement and commitment mechanisms under Sections 48A and 48B enable payment networks to resolve competition concerns early in the regulatory process, avoiding the twenty-year litigation cycles seen in the US.
Pure reliance on regulatory directives risks discouraging long-term innovation in the credit sector if banks cannot recover costs; a balance between regulatory price constraints and competitive market discipline is necessary.
India's promotion of RuPay as a domestic alternative directly addresses the structural duopoly concern by providing a genuine competitive alternative to Visa and Mastercard with different cost structures and regulatory incentives.
Competition in payment systems is ultimately about the freedom of merchants to choose the most efficient payment path, not merely about any particular fee level; this principle should guide both CCI enforcement and RBI regulatory design.
References
Cases
In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., No. 05-MD-1720 (E.D.N.Y. Nov. 15, 2025) (Order granting preliminary approval of amended injunctive relief settlement).
In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 330 F.R.D. 11 (E.D.N.Y. 2019), aff'd sub nom. Fikes Wholesale, Inc. v. Visa U.S.A., Inc., 62 F.4th 704 (2d Cir. 2023).
Ohio v. Am. Express Co., 138 S. Ct. 2274 (2018).
Competition Comm'n of India v. Bharti Airtel Ltd., (2019) 2 SCC 521.
Hoichoi Techs. Private Ltd. v. Reserve Bank of India, (2024) SCC OnLine Cal 1532.
Uber India Sys. Pvt. Ltd. v. Competition Comm'n of India, (2019) 8 SCC 697.
Statutes and Regulations
The Competition Act, 2002, No. 12, Acts of Parliament, 2003 (India).
The Competition (Amendment) Act, 2023, No. 9, Acts of Parliament, 2023 (India).
The Payment and Settlement Systems Act, 2007, No. 51, Acts of Parliament, 2007 (India).
Sherman Antitrust Act, 15 U.S.C. §§ 1 to 7 (United States).
Reserve Bank of India, Master Direction on Issuance and Conduct of Debit, Credit and Prepaid Cards, RBI/2022-23/92 (Apr. 21, 2022).
Reserve Bank of India, Circular on Rationalisation of Merchant Discount Rate (Dec. 6, 2017).
Ministry of Finance, Government of India, Press Release on Zero MDR Policy (Dec. 28, 2019).
Articles and Reports
K. Craig Wildfang and Ryan W. Marth, The Visa/Mastercard Interchange Fee Settlement: A Step Toward Competition, 28 Antitrust 78 (2013).
Ministry of Finance, Government of India, Report of the Committee on Digital Payments (Ratan Watal Committee) (2016).
Online Sources
Reserve Bank of India, Rationalisation of Merchant Discount Rate (MDR), https://www.rbi.org.in (last visited Feb. 2, 2026).
Competition Commission of India, Market Study on the Payment Systems Industry in India, https://www.cci.gov.in (last visited Jan. 30, 2026).
Official Settlement Website, In re Payment Card Interchange Fee Litigation, https://www.paymentcardsettlement.com (last visited Feb. 2, 2026).
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