Interchange Fees: The Hidden Cost Inside Every Card Purchase

Last updated September 17, 2026.

Every time you pay with a card, a slice of the purchase quietly flows from the store's side of the transaction to the bank that issued your card. You never see it on your receipt, but U.S. merchants paid a record $198 billion in card processing fees in 2025, according to Nilson Report figures publicized by a merchant trade coalition [1]. The biggest piece of that bill is called interchange. Here's what it is, who decides it, and why it's at the center of some of the biggest legal fights in payments.

Key takeaways

• Interchange is a fee paid on each card transaction from the merchant's bank (the acquirer) to the cardholder's bank (the issuer). Card networks such as Visa and Mastercard set the rate schedules [2][3].
• Rates depend on the card type (debit, standard credit, rewards credit), the merchant's industry, and how the card was accepted. On Mastercard's April 2026 U.S. schedule, a World Elite credit card at a supermarket carries a higher rate than a Core credit card [3].
• Debit cards from U.S. banks with $10 billion or more in assets are capped by the Federal Reserve's Regulation II at 21 cents plus 0.05% (plus a possible 1-cent fraud adjustment) [4][5]. A court vacated that standard in 2025, but the ruling is on hold during an appeal that was argued in May 2026 [6][7].
• A revised Visa/Mastercard merchant settlement won preliminary (not final) court approval in June 2026 [8][9].

What interchange is, in one sentence

Interchange is a per-transaction fee that the merchant's bank pays the card-issuing bank, which the merchant's bank then passes on to the merchant as part of its processing costs.

Visa describes interchange reimbursement fees as "transfer fees between acquiring banks and issuing banks for each Visa card transaction," and notes that merchants don't pay them directly; instead they negotiate a merchant discount rate with their provider [2]. In practice, though, interchange is baked into what merchants pay. Related field note

Interchange vs. the other fees on a card sale

Stripe, a processor, summarizes it this way: "Interchange typically represents the bulk of the network costs" [10]. Related field note

Who sets the rates?

In the U.S., Visa and Mastercard publish interchange schedules that list hundreds of rate categories. Issuers receive the fees; acquirers pay them. Mastercard's current U.S. schedule is labeled "Effective April 17, 2026" [3]. American Express has historically operated differently, often acting as both network and issuer and pricing merchants directly.

Networks generally adjust schedules once or twice a year. Because the networks compete to win issuing banks, higher interchange can make a network more attractive to issuers, which is one reason merchants argue that competition doesn't push these fees down.

Why some cards cost merchants more

Interchange rates vary on four main dimensions:

1. Card type. Debit is usually cheaper than credit. Premium rewards cards usually cost more than basic cards, because issuers use the extra revenue to help fund rewards [10].
2. Merchant category. Supermarkets, utilities, and charities often get lower categories than general retail.
3. How the card was accepted. Card-present (chip or tap) transactions are generally cheaper than online or keyed-in ones, which carry more fraud risk.
4. Data quality. Sending extra data, such as a ZIP code for online sales, can move a transaction into a cheaper category. Stripe says passing the ZIP code can reduce network costs "by up to 1.45% of the transaction amount" depending on card type [10].

What that looks like on a $50 grocery purchase

These examples use Mastercard's U.S. schedule effective April 17, 2026 [3]. They show interchange only, not network fees or processor markup, and actual categories depend on qualification rules.

For comparison, a general retail purchase on the same Core credit card falls under Mastercard's Merit I category at 1.95% + $0.10 [3].

Explore the payment path

Who ultimately pays?

This is where the debate starts.

• Merchants see interchange as a cost of acceptance, and many build it into shelf prices. The Merchants Payments Coalition, a retailer-backed advocacy group, reports that the average fee rate on Visa and Mastercard credit cards reached 2.36% in 2025 [1].
• Banks and networks argue interchange funds fraud protection, guaranteed payment, credit, and rewards, and that merchants benefit from higher sales.
• Consumers pay indirectly if prices rise. Because merchants usually charge everyone the same price, shoppers paying cash or with basic debit can end up helping to subsidize rewards earned by premium cardholders. How large that effect is remains contested.

The U.S. debit cap: Regulation II and the Durbin Amendment

The 2010 Dodd-Frank Act's Durbin Amendment directed the Federal Reserve to make debit interchange "reasonable and proportional" to issuers' costs. The Fed's Regulation II sets the limit: a covered issuer may not receive more than "$0.21 plus 0.05 percent multiplied by the value of the transaction, plus a $0.01 fraud-prevention adjustment, if eligible" [5].

Key details:

• Who is covered: issuers with assets of $10 billion or more at the end of the prior calendar year. Smaller banks and credit unions are exempt [4].
• Routing: all debit issuers must enable at least two unaffiliated networks, so merchants have a routing choice [11].
• Real-world averages (2024): covered transactions averaged $0.23 (0.47% of value); exempt transactions averaged $0.51 (1.21%) [5].

Where the legal challenge stands (as of September 17, 2026)

• August 2025: In Corner Post v. Board of Governors, a federal district court in North Dakota vacated Regulation II's fee standard but stayed its own ruling pending appeal, so the cap stayed in force [6].
• 2025–2026: The Fed appealed to the Eighth Circuit. Briefing concluded in spring 2026 [7].
• May 13, 2026: A three-judge panel heard oral argument, pressing both sides on whether the Fed may count costs beyond those tied to individual transactions [12].
• Now: We found no published Eighth Circuit decision as of September 17, 2026. The cap remains in effect while the stay holds. Separately, the Fed's October 2023 proposal to lower the cap has not been finalized, based on the Fed's Regulation II page [11].

Credit card interchange: settlement and legislation

The Visa/Mastercard settlement

On June 9, 2026, U.S. District Judge Brian Cogan in Brooklyn granted preliminary approval to a revised settlement of a long-running merchant class action covering about 12 million merchants [8]. Reported terms include [8][9]:

• a 10-basis-point (0.10 percentage point) reduction in interchange rates for five years;
• a 1.25% cap on rates for standard consumer credit cards for eight years;
• the right to decline some higher-cost premium and commercial credit cards; and
• more flexibility to surcharge or offer discounts.

Walmart and other large merchants objected; the National Association of Convenience Stores said it would appeal if final approval is granted [8]. Analysts cited by American Banker expected a final decision in late 2026 or early 2027, with appeals possibly pushing implementation years out [9]. None of these changes is in effect yet. Related field note

The Credit Card Competition Act

Senators Dick Durbin and Roger Marshall reintroduced the Credit Card Competition Act in January 2026. It would require large credit card issuers to enable a network alternative to Visa and Mastercard. An attempt to attach it to a Senate housing bill failed in March 2026 [13]. It is proposed legislation, not law.

State action: Illinois

Illinois' Interchange Fee Prohibition Act would bar interchange on the sales-tax and tip portions of a purchase. On June 1, 2026, a federal court permanently enjoined that limit for national banks, federal savings associations, out-of-state state banks, and card networks, while Illinois-chartered banks and credit unions remain subject to it; the legislature also pushed the effective date to July 1, 2027 [14]. Further appeals are expected.

How other places handle it

The European Union caps consumer interchange at 0.2% of the transaction value for debit cards and 0.3% for credit cards under Regulation (EU) 2015/751 [15]. On a €50 purchase, that's at most 10 or 15 euro cents. The U.S. has no federal cap on credit interchange.

What merchants can do (without taking sides)

• Know your pricing model. Flat-rate plans bundle interchange; interchange-plus plans show it line by line. Related field note
• Send complete data on online and B2B transactions so they qualify for the right category [10].
• Understand surcharge rules. Visa's U.S. rules cap a credit card surcharge at the lesser of the merchant's discount rate or 3%, prohibit surcharging Visa debit and prepaid cards, and require disclosures at the point of entry and point of sale [16]. Some states restrict surcharging; check local law.
• Consider cheaper payment options such as debit routing or pay-by-bank where they fit your customers. Related field note

FAQ

Is interchange the same as a credit card processing fee? No. Interchange is one component. Your total processing cost also includes network fees and your provider's markup.

Do consumers pay interchange? Not directly. Merchants bear it, though economists and advocates debate how much is passed on through prices.

Why do rewards cards cost merchants more? Networks set higher interchange categories for premium cards, and issuers use that revenue partly to fund rewards [3][10].

Is the debit card cap still in effect? Yes, as of September 17, 2026. A 2025 court ruling that vacated the standard is stayed while the Eighth Circuit considers the Fed's appeal [6][12].

Has the Visa/Mastercard settlement lowered my fees yet? No. It received preliminary approval on June 9, 2026. Final approval and any appeals must come first [8][9].

Can a merchant add a surcharge for cards? Sometimes. Network rules limit surcharges to credit cards and cap them (3% maximum under Visa's rules), and some states restrict the practice [16].

Sources

1. Merchants Payments Coalition (retailer-backed advocacy group, citing Nilson Report), "Credit and Debit Card 'Swipe' Fees Reach Record $198.25 Billion as President and Congress Call for Action," https://merchantspaymentscoalition.com/credit-and-debit-card-swipe-fees-reach-record-19825-billion-president-and-congress-call-action, March 18, 2026, accessed 2026-09-17.
2. Visa, "Credit Card Processing Fees & Interchange Rates," https://usa.visa.com/support/small-business/regulations-fees.html, accessed 2026-09-17.
3. Mastercard, "Mastercard 2026–2027 U.S. Region Interchange Programs and Rates" (effective April 17, 2026), https://www.mastercard.com/content/dam/mccom/us/business/documents/merchant-rates-2026-2027-april2026.pdf, accessed 2026-09-17.
4. Electronic Code of Federal Regulations, 12 CFR 235.5, "Exemptions from interchange fee limitations," https://www.ecfr.gov/current/title-12/chapter-II/subchapter-A/part-235/section-235.5, accessed 2026-09-17.
5. Federal Reserve Board, "Regulation II – Average Debit Card Interchange Fee by Payment Card Network" (2024 data), https://www.federalreserve.gov/paymentsystems/regii-average-interchange-fee.htm, accessed 2026-09-17.
6. Cooley LLP, "District Court Vacates Regulation II's Debit Card Interchange Fee Standard," https://www.cooley.com/news/insight/2025/2025-08-15-district-court-vacates-regulation-iis-debit-card-interchange-fee-standard, Aug. 15, 2025, accessed 2026-09-17.
7. ABA Banking Journal, "Federal Reserve files reply brief in Reg. II appeal," https://bankingjournal.aba.com/2026/04/federal-reserve-files-reply-brief-in-reg-ii-appeal/, spring 2026, accessed 2026-09-17.
8. Payments Dive, "Court approves Visa-Mastercard settlement," https://www.paymentsdive.com/news/court-approves-visa-mastercard-settlement/822440/, June 9, 2026, accessed 2026-09-17.
9. American Banker, "Judge approves card network-fee settlement with merchants," https://www.americanbanker.com/payments/news/judge-approves-card-network-fee-settlement-with-merchants, June 10, 2026 (updated June 11, 2026), accessed 2026-09-17.
10. Stripe, "A guide to managing network costs," https://stripe.com/guides/guide-to-managing-network-costs, accessed 2026-09-17.
11. Federal Reserve Board, "Regulation II (Debit Card Interchange Fees and Routing)," https://www.federalreserve.gov/paymentsystems/regii-about.htm, accessed 2026-09-17.
12. Courthouse News Service, "Eighth Circuit presses Federal Reserve on 21-cent debit card fee cap," https://www.courthousenews.com/eighth-circuit-presses-federal-reserve-on-21-cent-debit-card-fee-cap/, May 13, 2026, accessed 2026-09-17.
13. Payments Dive, "CCCA seeks new path to passage," https://www.paymentsdive.com/news/ccca-seeks-new-path-to-passage/813789/, March 4, 2026 (updated March 13, 2026), accessed 2026-09-17.
14. Ballard Spahr, Global Fintech & Digital Assets Blog, "Illinois Interchange Fee Law Maxes Out After Permanent Injunction and Legislative Postponement," https://www.fintechanddigitalassets.com/2026/06/illinois-interchange-fee-law-maxes-out-after-permanent-injunction-and-legislative-postponement/, June 2026, accessed 2026-09-17.
15. EUR-Lex, "Regulation (EU) 2015/751 on interchange fees for card-based payment transactions," https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32015R0751, April 29, 2015, accessed 2026-09-17.
16. Visa, "U.S. Merchant Surcharge Q&A" (version dated Feb. 15, 2024), https://usa.visa.com/content/dam/VCOM/global/support-legal/documents/merchant-surcharging-qa-for-web.pdf, accessed 2026-09-17.

Disclaimer: This article is for educational purposes only and is not financial, legal, or tax advice. Interchange schedules, network rules, and court cases change; verify current terms with your payment provider, the card networks, and official sources before making decisions.