Interchange Rates and Fees: Merchants, Visa, and Mastercard at Odds

Lawmakers in Colorado and Illinois approved measures to limit charges on credit and debit card transactions imposed by Visa, Mastercard, and card issuers, but both efforts ran into obstacles this year. Neither policy is active: one was vetoed this month, and the other has been pushed back.

Interchange fees are the wholesale fees tied to card payments that flow from a merchant’s bank (the acquiring bank) to the customer’s card-issuing bank when a card is used. In a typical card transaction, the merchant pays a broader “processing” or “card acceptance” cost to its processor or acquiring bank, and interchange is a major component inside that total cost, alongside network assessments and processor markups.

In practice, merchants are the party that directly pays interchange as part of accepting cards, though businesses often factor those costs into prices. Issuing banks receive interchange revenue, while consumers may feel the effects indirectly through pricing, rewards programs, and acceptance policies at the checkout.

Interchange is generally set via rate schedules and commonly takes the form of a percentage of the sale plus a fixed per-transaction amount. Rates vary based on factors such as whether the card is credit or debit, whether it is a premium or rewards card, how the transaction is performed (in person with chip, contactless, online, or manually keyed), the merchant category code, and risk or data details tied to the sale (such as fraud controls and how the transaction is cleared).

Credit and debit interchange fees can differ because debit transactions typically involve different funding and risk dynamics, and in the U.S. certain debit interchange rates are subject to federal constraints for large issuers. Credit interchange, by contrast, is more closely tied to network-set schedules that can vary widely by card product and transaction type.

Issuing banks make money from interchange because they receive that fee revenue on transactions made by their cardholders, helping fund card operations and, in many cases, rewards and other customer benefits. Merchants and some lawmakers argue those economics create incentives for higher-cost card products, while banks and networks say the system supports fraud protection, credit availability, and payment infrastructure.

American Express is often associated with higher acceptance costs than Visa or Mastercard because its network structure and business model have historically combined network and issuing roles more tightly and emphasized premium cardholders and richer rewards. In many cases, that premium positioning and rewards funding translate into higher merchant discount rates, even if the exact pricing can vary by merchant size, industry, and negotiated terms.

Federal Settlement and Ongoing Litigation Over Card Interchange Fee

On another front, a federal settlement between the card networks and merchants that was expected to ease interchange fee burdens proved unpopular with many plaintiffs. A judge nevertheless approved the agreement this month despite protests.

Together, these state and federal developments reinforce a familiar industry reality: the clash between card networks and merchants will continue, with merchants criticizing Visa and Mastercard for their market dominance in payment card processing.

After more than two decades of disputes over network charges and the interchange fee assessed on every card payment, the conflict shows no sign of fading, even as merchants suffered new setbacks this month.

The frustration was evident in remarks from Sean Kennedy, chief advocacy officer at the National Restaurant Association, following court approval of a revised pact between the card companies and merchant plaintiffs.

He contended the deal barely addresses the core antitrust concerns and provides little meaningful relief to small restaurant owners struggling with credit card swipe costs.

State Reactions: Colorado Veto and Illinois Delays

Although Colorado’s governor rejected a bill designed to curb these charges, he signaled support for merchants’ concerns. Democrat Jared Polis said he backs the bill’s objective and called for reducing friction across the payments ecosystem.

In Illinois, even with support from Gov. JB Pritzker, lawmakers have twice postponed implementing the statute amid federal litigation, despite a partial court win. The measure also faced opposition from the Trump administration this year.

Congressional Push and Lobbying Around the Interchange Rate

Merchants have also failed so far to secure passage of the Credit Card Competition Act in Congress, despite President Donald Trump endorsing the bill championed by Republican Sen. Roger Marshall.

Taken together, these losses suggest Visa and Mastercard, aligned with issuing banks and powerful trade groups, have effectively defended their profitable card processing model against efforts to curtail it.

Meanwhile, the Federal Reserve’s plan to lower allowed charges on debit card transactions has moved slowly, with scant explanation from the central bank about the delay in adjusting debit card interchange fees.

Whether it is “illegal” to add a 3% fee specifically for debit card use depends on the rules and laws that apply to the transaction, but it is commonly restricted in practice. Visa and Mastercard network rules generally prohibit surcharging debit card transactions, and merchants that violate network rules can face penalties from their acquirers. Separately, state laws can restrict surcharging more broadly, while federal rules focus more on debit interchange and routing requirements than on giving merchants a blanket right to impose debit surcharges.

Interchange fee regulation also differs widely by country. In the United States, the most direct federal constraints are tied to certain debit transactions and covered issuers, while credit card interchange is largely shaped by network schedules and market forces. Other jurisdictions more directly cap or structure interchange, which can change how costs show up for merchants and how card programs are priced for consumers.

What’s Next: Efforts to Reduce Interchange Fees

Not all avenues are closed. The Illinois attorney general may appeal the federal ruling that prompted the pause of the Illinois Interchange Fee Prohibition Act.

There is also a chance Sen. Dick Durbin, the Illinois Democrat who has long pressed to cut interchange costs, will make another push for the Credit Card Competition Act before his tenure ends in January.

For businesses, interchange can raise operating costs and compress margins, particularly in low-margin sectors where card use is high. Consumers may encounter those costs indirectly through higher prices, minimum-purchase policies, or changes in how merchants steer payment choices.

Merchants that want to reduce card acceptance costs typically look to operational and contractual levers rather than a single fix, such as improving transaction data quality, using more secure acceptance methods to avoid higher-risk rates, reviewing processor markups, encouraging lower-cost payment types where permitted, and optimizing debit routing options when available. The extent of any savings depends on the merchant’s mix of card types, sales channels, and the terms negotiated with processors and acquirers.

Bottom line: the struggle over network charges and the interchange fee is far from finished.