Interchange fees are the per-transaction charges a merchant’s bank pays to the customer’s card-issuing bank every time someone pays with a credit or debit card. The card networks (Visa, Mastercard, and others) set the rates, and the fee is usually a percentage of the sale plus a small fixed amount. In 2024, U.S. interchange totaled roughly $236.4 billion, which puts it among the largest operating costs for any business that accepts electronic payments.
How the Money Moves on a Card Transaction
Two banks sit on opposite sides of every card sale. The acquiring bank (the merchant’s bank) provides the terminal, the processing account, and the plumbing a business needs to accept cards. The issuing bank is the institution that gave the customer the card and manages their credit line or checking balance.
When a customer taps, swipes, or types in a card number, the acquiring bank asks the issuing bank to verify and release the funds. The issuer confirms the customer has enough available credit or money and authorizes the sale. The acquiring bank then subtracts the interchange fee from the sale amount before depositing the rest into the merchant’s account. That deducted fee goes to the issuing bank as compensation for extending credit, carrying fraud risk, and running the cardholder’s account.
What Determines the Rate on a Given Sale
Interchange is not one flat rate. It shifts with several variables, and the spread between the cheapest and most expensive transactions is wide.
- Card-present vs. card-not-present. A physical tap or insert carries less fraud risk, so the fee is lower. Online, phone, and keyed-in transactions cost more because the issuer has less certainty about who is actually paying.
- Card type. A basic debit card is far cheaper to process than a premium travel rewards credit card. Richer cardholder perks are funded by higher interchange on the merchant side.
- Merchant category. Every business is assigned a merchant category code. Grocery stores and gas stations tend to get lower rates because they process high volumes of small tickets. Industries with larger average sales or higher chargeback rates pay more.
- Transaction size. Some tiers include a minimum per-transaction fee, so the effective percentage on a $5 coffee is far higher than on a $500 appliance.
What Real Interchange Rates Look Like
Payment networks publish rate schedules that run dozens of pages. A few representative numbers from Visa’s U.S. schedule effective October 2025 show the shape of the pricing.
For consumer debit cards issued by smaller banks (exempt from the federal cap discussed below), in-store retail costs about 0.80% plus $0.15 per swipe, restaurants run about 1.19% plus $0.10, and online debit jumps to roughly 1.65% plus $0.15. For debit cards from large, federally regulated banks, the rate drops to a flat 0.05% plus $0.21 regardless of category, reflecting the Durbin cap.1Visa USA. Visa USA Interchange Reimbursement Fees
Credit cards run much higher. A standard in-store retail credit transaction ranges from about 1.43% plus $0.10 on basic cards up to 2.30% plus $0.10 on premium Visa Infinite. Restaurant credit transactions reach 2.10% to 2.60% depending on the card tier. Online credit lands around 2.05% with no flat component. Mastercard’s schedule tracks a similar structure, with its standard consumer credit rate listed at 3.15% plus $0.10 for transactions that do not qualify for any preferred category.1Visa USA. Visa USA Interchange Reimbursement Fees2Mastercard. Mastercard 2025-2026 US Region Interchange Programs and Rates
The gap is worth internalizing. A restaurant processing a $50 meal on a regulated debit card pays about $0.24 in interchange. The same meal on a premium rewards credit card can cost $1.30 or more. That spread is why some merchants steer customers toward debit or cash.
Who Actually Keeps the Fee
A common misread is that Visa and Mastercard collect interchange. They don’t. Interchange flows entirely to the issuing bank. The networks set the schedules and operate the rails that route transactions between banks, but their own revenue comes from separate assessment fees on transaction volume, which are much smaller than interchange (usually a fraction of a percent, with the exact rates varying by card type and routing).
Networks review and update their interchange schedules roughly twice a year, with Visa and Mastercard typically publishing new rates in April and October. Updates respond to fraud patterns, processing costs, and competitive pressure between the networks.
Where the Government Sets a Cap
Credit card interchange is set entirely by the networks with no federal price control. Debit is different. The Durbin Amendment, enacted in the Dodd-Frank Act and codified at 15 U.S.C. ยง 1693o-2, directs the Federal Reserve to make sure debit interchange is “reasonable and proportional” to the issuer’s actual processing costs.3Federal Register. Debit Card Interchange Fees and Routing
Under the Fed’s implementing rule (Regulation II), banks with more than $10 billion in assets can charge no more than 21 cents plus 0.05% of the transaction, with an additional 1-cent fraud-prevention adjustment if the issuer meets certain standards. On a $50 purchase, that works out to a maximum of about $0.245.3Federal Register. Debit Card Interchange Fees and Routing4Board of Governors of the Federal Reserve System. 2023 Interchange Fee Revenue, Covered Issuer Costs, and Covered Issuer and Merchant Fraud Losses Related to Debit Card Transactions
Smaller banks and credit unions under $10 billion in assets are exempt. That exemption is why a debit swipe on a card from a community bank can still carry a higher interchange rate than one from a national bank.3Federal Register. Debit Card Interchange Fees and Routing
What Could Move the Numbers Next
Three pending developments could reshape interchange in the next few years.
In late 2023, the Federal Reserve proposed lowering the base debit component from 21 cents to 14.4 cents, reducing the ad valorem component, and automatically recalculating the cap every two years using updated issuer cost data. Banking industry groups pushed back, and an Eighth Circuit case has questioned whether the original Regulation II itself complies with Dodd-Frank. As of early 2026, the proposed reduction has not been finalized and the 21-cent cap remains in effect.
In November 2025, Visa and Mastercard reached a revised class-action settlement with merchants that, if approved, would reduce interchange rates by roughly 0.10 percentage points over five years and cap standard consumer credit interchange at 1.25% for eight years. The settlement would also eliminate the “honor all cards” rule, which currently requires merchants who take any Visa or Mastercard credit card to accept every card those networks issue, including high-fee premium products. Final approval is pending.
The bipartisan Credit Card Competition Act was reintroduced in 2026 as S.3623 in the 119th Congress.5Congress.gov. S.3623 – Credit Card Competition Act of 2026 The bill would require issuing banks to enable at least two competing processing networks on every credit card, rather than the current arrangement where most cards route exclusively through Visa or Mastercard. The logic mirrors what Durbin already requires for debit: if merchants can choose between networks, competition should push rates down. Supporters estimate savings of roughly $15 billion a year for businesses and consumers combined. The bill has not passed, and card networks and large issuers have opposed it.
How Merchants Pass Interchange to Customers
Businesses have two main tools for shifting some of the cost to cardholders: credit card surcharges and cash discounts. The legal frameworks differ, and confusing them can create real problems.
Credit Card Surcharges
Since a 2013 legal settlement, merchants in most states can add a surcharge to credit card transactions to offset processing costs. Under Mastercard and Visa’s network rules, the surcharge cannot exceed 4%, and it must be the lesser of that cap or the merchant’s actual cost of accepting the card. The merchant must notify both the card network and the acquirer at least 30 days before starting to surcharge, disclose the amount to customers before checkout, and print it on the receipt.6Mastercard. Mastercard Credit Card Surcharge Rules and Fees for Merchants
Surcharging is allowed only on credit cards. Federal law prohibits surcharges on debit card transactions entirely, even if the customer runs the debit card as credit. A handful of states also ban credit card surcharges outright, including Connecticut, Maine, and Massachusetts, and the rules in a few other states remain unsettled.
Cash Discounts
Cash discounts are simpler. Federal law explicitly protects a merchant’s right to offer a lower price to customers who pay with cash, check, or similar non-card methods, and card issuers cannot contractually prohibit the practice. The discount has to be available to all customers and clearly disclosed.7Office of the Law Revision Counsel. 15 US Code 1666f – Inducements to Cardholders by Sellers of Cash Discounts
The practical difference between the two is mostly psychological. A surcharge adds a fee on top of the listed price for card users; a cash discount treats the card price as the listed price and takes something off for cash. Legally the distinction matters, because surcharges trigger network notification requirements and state law restrictions while cash discounts face neither. That is why many small businesses frame their pricing as a cash discount rather than a card surcharge.