What Are Interchange Fees: Rates, Caps, and Surcharges

Interchange fees are the per-transaction charges that move from a merchant’s bank to a cardholder’s bank every time someone pays with a credit or debit card. They totaled more than $111 billion across the United States in 2024, which puts them among the largest operating costs for any business that accepts cards. The fee is meant to cover fraud risk, account servicing, and the infrastructure behind digital payments, and it is paid by the merchant’s side of the transaction, not by the cardholder directly.

How the Fee Moves Between Banks

Every card sale involves four parties: the cardholder, the merchant, the cardholder’s bank (the issuing bank), and the merchant’s bank (the acquiring bank). When a card is used, the acquiring bank routes the transaction through a card network such as Visa or Mastercard to the issuing bank for approval. Once approved, the issuing bank sends the funds to the acquiring bank minus the interchange fee, which the issuing bank keeps.¹

Merchants never see interchange as its own line item. The acquiring bank bundles it together with its own markup and the card network’s assessment fees into a single charge called the merchant discount rate. For most businesses, total card processing costs land somewhere between 2% and 3.5% of each sale, and interchange is the biggest piece of that.

What Determines the Rate on Any Given Sale

There is no single interchange rate. A single merchant can pay dozens of different rates in a month depending on how customers pay. A handful of factors drive the number.

Card Type

Premium rewards cards that offer cash back, airline miles, or hotel points carry higher interchange than standard cards. The issuing bank funds those rewards partly through the higher fee it collects on the merchant side. Corporate and commercial purchase cards also run at elevated rates compared to basic consumer debit or credit cards.

Merchant Category Code

Every merchant is assigned a four-digit Merchant Category Code that identifies the type of business. Card networks use the MCC to sort transactions into risk and pricing categories, so a grocery store, a gas station, and a restaurant each face different baseline rates.² A higher-risk MCC generally means a higher fee on every transaction.

Card-Present vs. Card-Not-Present

Whether the physical card is present at the sale matters a lot. In-store transactions where the card is swiped, dipped, or tapped carry lower interchange because the merchant can verify the cardholder in person and chip or contactless technology reduces fraud. Online and phone orders cost more. A basic Visa debit card swiped in a store may carry an interchange rate around 0.80% plus $0.15, while the same card used online could be charged roughly 1.65% plus $0.15 for exempt issuers.

Security and Verification Tools

Merchants that use fraud-prevention tools can qualify for lower rates. Address Verification Service, which checks that the billing address a customer enters matches the one on file with the issuing bank, is one common example. Visa offers reduced interchange on card-not-present transactions when an AVS check is performed, a difference that can run close to half a percentage point per sale.

Enhanced Data for Business-to-Business Sales

Merchants selling to other businesses or to government buyers can lower their interchange by submitting more data with each transaction. Card networks recognize three tiers:

Level 1 is the default for most consumer purchases and covers basic information like the transaction amount and date.
Level 2 adds fields like sales tax, a customer reference or purchase order number, and the merchant postal code, and qualifies for a lower rate.
Level 3 adds line-item detail equivalent to an itemized invoice, including product descriptions, quantities, and unit costs, and earns the lowest commercial card rates available.

The savings add up fast on big orders. On a $10,000 purchase card transaction, moving from no enhanced data to Level 3 can save $50 or more. Visa, Mastercard, and American Express all offer reduced interchange for Level 2 and Level 3 submissions; Discover does not participate in enhanced data programs.

Who Sets Interchange Rates

Visa and Mastercard are the central rate-setters. Neither network actually keeps the interchange fee; the money flows between the issuing and acquiring banks. The networks publish detailed schedules that all member banks must follow,¹ which prevents thousands of individual banks from negotiating separate fees for every transaction type.

Both major networks update their schedules twice a year, typically in April and October.³ The published rates run to hundreds of combinations across card products, merchant categories, transaction sizes, and processing methods. Visa’s schedule, for example, breaks rates down by consumer credit, consumer debit, commercial, and prepaid, each with further divisions for industry and transaction size, from small-ticket purchases under $5 to large-ticket amounts above $1 million.⁴

What Federal Law Caps, and What It Doesn’t

Federal law does not cap interchange on credit cards. For debit cards, the Durbin Amendment, part of the Dodd-Frank Act of 2010, directs the Federal Reserve to ensure that interchange fees are “reasonable and proportional to the cost incurred by the issuer.”⁵ That rule applies only to debit transactions and only to large financial institutions.

The Debit Cap

Under the Federal Reserve’s Regulation II, banks with $10 billion or more in consolidated assets face a maximum debit interchange fee of 21 cents plus 0.05% of the transaction value. An additional 1-cent fraud-prevention adjustment is available to issuers that meet security standards set by the Federal Reserve.⁵ On a $50 debit purchase at a covered bank, the maximum fee works out to roughly 24.5 cents.

In 2023 the Federal Reserve proposed lowering the cap to 14.4 cents plus 0.04% of the transaction, with a higher fraud-prevention adjustment of 1.3 cents.⁶ As of early 2026 that proposal has not been finalized, and the 21-cent cap remains in effect.

The Small-Bank Exemption

Banks and credit unions with less than $10 billion in consolidated assets are exempt from the cap.⁵ They can and typically do charge higher debit interchange. Federal Reserve data put the average interchange fee on exempt transactions at $0.58 per transaction in 2023, compared to $0.23 for regulated transactions at covered issuers.⁷

Credit Cards Aren’t Covered

Credit card interchange is set entirely by the networks and issuing banks, with no federal price cap. Credit rates regularly exceed 2% of the transaction value, while regulated debit rates are a fraction of that. Some issuers have responded to the debit cap by making their credit cards more attractive through richer rewards programs funded by the higher, unregulated credit fees.

Debit Routing Choice

The Durbin Amendment also addresses routing. It prohibits issuers and networks from restricting a debit transaction to fewer than two unaffiliated networks,⁵ which means every debit card has to work on at least two competing networks. The law also bars networks from preventing merchants from picking which of the available networks to use, so merchants can route to the lower-cost path.⁶

Pending Credit Card Legislation

The Credit Card Competition Act has been introduced in multiple sessions of Congress and was reintroduced in the 119th Congress as S.3623.⁸ It would extend a routing-choice concept similar to Durbin’s debit provisions to credit cards, barring banks with more than $100 billion in assets from restricting credit transactions to a single network. The bill has not been enacted as of early 2026.

Passing the Cost to Customers

Merchants have two main ways to push interchange costs onto card-paying customers: credit card surcharges and cash discounts. They can look similar at the register, but the rules behind them are different.

Credit Card Surcharges

A surcharge is an extra fee added at checkout when a customer pays with a credit card. Federal law allows surcharging on credit but prohibits it on debit.⁵ A handful of states, including Connecticut, Massachusetts, and Maine, also prohibit or restrict credit card surcharges, so check state rules before adding one.

Card networks layer their own requirements on top of federal and state law. Mastercard, for example, requires merchants to notify both the network and their acquiring bank at least 30 days before they begin surcharging. The surcharge has to be disclosed at the point of entry to the store, at the register, and on the receipt, and it can’t exceed 4% of the transaction or the merchant’s actual cost of accepting that card, whichever is lower. Surcharges aren’t allowed on debit or prepaid Mastercard transactions.⁹

Cash Discounts

A cash discount works the other way: instead of adding a fee for card use, the merchant offers a lower price for paying in cash. Federal law protects the right to offer cash discounts, and networks cannot penalize a business for doing so.⁵ The discount has to be available to all customers and clearly posted. Because the advertised price is the card price and cash buyers get a reduction, this approach sidesteps the surcharge restrictions that apply in some states.

How Processors Actually Bill You

What a merchant pays in practice depends on the pricing model their payment processor uses. Three structures dominate, and they handle interchange very differently.

Interchange-Plus

The processor passes the exact interchange rate for each transaction through unchanged and adds a fixed markup, say 0.3% plus 10 cents per sale. This is the most transparent model because the merchant can see what the network charged and what the processor added. It tends to produce the lowest overall cost for businesses with moderate to high volume, which is why most large U.S. merchants use it.

Tiered

Tiered pricing groups transactions into a few broad categories, typically “qualified,” “mid-qualified,” and “non-qualified,” each with a different rate. The processor decides which category a given transaction falls into, and merchants often have little visibility into why. The model is simpler to read on a statement but frequently costs more, because lower-interchange transactions may still be billed at a higher tier.

Flat-Rate

Flat-rate processors charge a single predictable percentage on every transaction regardless of card type or interchange category, for example 2.6% plus 15 cents for in-person sales. Small businesses and newer merchants like it because there are no monthly fees, no rate tables, and no surprises. The trade-off is that the flat rate is set high enough to cover even the most expensive interchange categories, so high-volume merchants or those with low-risk transaction profiles may overpay compared to interchange-plus.

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Visa. Credit Card Processing Fees and Interchange Rates
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Mastercard. Quick Reference Booklet – Mastercard
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Visa. Visa USA Interchange Reimbursement Fees
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Mastercard. 2025-2026 U.S. Region Interchange Programs and Rates
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Office of the Law Revision Counsel. 15 USC 1693o-2 – Reasonable Fees and Rules for Payment Card Transactions
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Federal Register. Debit Card Interchange Fees and Routing
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Federal Reserve Board. 2023 Interchange Fee Revenue, Covered Issuer Costs, and Covered Issuer and Merchant Fraud Losses Related to Debit Card Transactions
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Congress.gov. S.3623 – Credit Card Competition Act of 2026
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Mastercard. What Merchant Surcharge Rules Mean to You