Competition doesn't matter if entities have to simultaneously follow all of the payment processors' rules. It means in order to compete you have to find people willing to give up everything else. Which is an impossible proposition.
It's like if a tier 1 ISP only peered with networks that peer with networks that censor XYZ. Allowing for these kind of agreements leads to censorship and is why net neutrality is important from the government.
FWIW, "tier 1 ISP" is less prestigious than you'd think. Many tier 2's are bigger than many tier 1's. Being a tier 1 is kind of a self-exclusionary, nose-snubbing policy and in some ways it's surprising they manage to hang onto existence at all, though not in all ways.
This typically comes up when someone thinks they're getting better transit service from a tier-1 than a tier-2. They're not. A tier-2 ISP can have better routes, since a tier-1 will refuse to deliver your traffic anywhere that requires them to pay money. Some places are just unreachable from tier-1 ISPs.
Famously, for over a decade Cogent has refused to receive packets from Hurricane Electric without payment because idk profits, and Hurricane Electric has refused to pay them because it's a tier-1-ish, so you just can't talk to Cogent customers if you're an HE customer and vice versa. (I think HE eventually relented by paying a third-party to forward packets to specifically Cogent, even though they have tier-1 status to everywhere else)
What prevents any old ISP from claiming it is tier 1?
Being laughed out of the room?