Explainer: understanding US interchange fees – a guide for European merchants

Dan Carter, Senior Director at Redbridge Debt and Treasury Advisory, offers European merchants an insightful guide to US interchange fees.

A brief history of interchange fees

The modern interchange fee structure in the US emerged in the 1970s, when card networks such as Visa and Mastercard introduced standardised fees. The goal was straightforward: to compensate issuing banks for the cost and risk of handling card transactions. At the time, this model was viewed as a fair mechanism for balancing the needs of merchants, banks, and cardholders.

Over the decades, however, interchange fees in the US evolved into something far more complex. What began as a relatively uniform set of charges quickly splintered into hundreds of categories. A major turning point came with the rise of credit card rewards programmes. To fund airline miles, hotel points, cash back, and more obscure perks such as contributions to healthcare savings accounts (HSA/FSA), issuing banks relied on interchange fees as their revenue stream. In effect, merchants’ payments subsidised the cardholder benefits that made credit cards more attractive.

Today, the US system is highly fragmented, with fees that differ based on dozens of variables: the type of card, whether the transaction is conducted in-person or online, the merchant’s industry classification, and even the compliance steps taken during processing. Despite periodic promises by networks to reduce complexity, the number of interchange categories continues to grow. In 2025, merchants navigating this system face a labyrinth of opaque rules that often require expert guidance to manage effectively. It is also worth mentioning that the card networks adjust their rules two times per year, in April and October. 

A transatlantic contrast

For Europeans, the US interchange model often appears bewildering and unnecessarily costly. In the European Economic Area (EEA), interchange fees have been progressively harmonised and capped following the introduction of the Interchange Fee Regulation (IFR) in 2015. The EEA caps interchange at 0.20% for debit and 0.30% for credit card transactions, creating predictability and relative simplicity – as well as the opportunity for alternative payment methods to flourish.

The US is the polar opposite. According to internal Redbridge data, interchange fees make up an average of 86% of total merchant transaction costs. This is significantly higher than in the EU, where other components of the ‘swipe fees’ (such as network assessment/scheme and acquirer processing fees) represent a more balanced share of the total.

For European businesses accustomed to flat, transparent structures, entering the US market can be a rude awakening. The variability of fees introduces uncertainty into cost forecasting, complicates financial modelling, and demands far greater operational oversight.

The role of regulation in the US

Unlike the EU, the US has not imposed broad interchange caps. The most notable regulatory intervention was the Durbin Amendment (2010), which limited debit card interchange fees for banks with more than USD 10 billion in assets. Debit fees, once averaging around 1.2%, were reduced to approximately 0.05% plus USD 0.21 per transaction for covered issuers with an additional USD 0.01 for fraud adjustment. It should be noted that the Durbin Amendment is under scrutiny, with the US already considering reductions – and a recent federal case coming from South Dakota has challenged the Fed’s calculation. Important to note, the federal judge immediately stayed their ruling.

However, credit card interchange remains untouched by federal caps. Networks and issuing banks continue to set credit fees at market-driven rates, which has contributed to the persistence of high costs. Lobbying efforts by card networks and banks have repeatedly stymied proposals to regulate credit interchange fees more aggressively.

For European businesses, this is an important cultural difference: whereas EU regulators view interchange as a consumer protection issue, US policymakers often frame it as a market negotiation between private actors.

Anatomy of a US interchange fee

Understanding how interchange fees are set in the US is critical. While fees vary, the following factors typically play the largest role:

1. Card Type – Premium rewards credit cards carry higher fees than basic debit cards. Merchants pay more when customers use cards that generate generous perks. This is further expanded by the distinction between commercial and consumer cards.
2. Transaction Mode – Card-present transactions (e.g., in-store with EMV or contactless) usually cost less than card-not-present transactions (e.g., online or over the phone), which are deemed riskier.
3. Merchant Category Code (MCC) – Different industries pay different rates. For example, supermarkets may enjoy preferential pricing compared to luxury retailers.
4. Processing Compliance – Merchants that fail to meet technical requirements may be routed into higher-cost categories.

A simple purchase at a US coffee shop might carry an interchange fee of 1.90% + USD 0.04, while an ecommerce purchase using a premium rewards card could easily exceed 3%. Multiply these differences across millions of transactions, and the financial impact on merchants becomes substantial.

Why merchants should care about interchange fees

For merchants, interchange fees are not merely an abstract banking mechanism – they represent a tangible operating cost. In the US, interchange is often the second-highest expense after labor costs. For low-margin industries such as grocery or fuel retailing, even a small difference in fee structure can determine profitability.

European merchants expanding into the US need to grasp that interchange fees are partly unavoidable yet highly manageable. Without close monitoring, businesses may overpay simply because they lack visibility into how transactions are categorised. For example:

• A hotel chain that doesn’t configure its payment systems correctly might inadvertently route transactions into a higher-cost category.
• A retailer that fails to update its fraud prevention tools might face elevated fees for online payments deemed ‘riskier’.

In both cases, merchants pay more without realising that compliance and optimisation could significantly reduce costs. 

Strategies for managing interchange costs

For merchants facing the US landscape, the key is not to fight interchange directly but to manage and optimise within the rules. Practical strategies include:

1. Transaction Routing;
2. Data Quality and Compliance;
3. Payment Method Selections;
4. Chargeback Management;
5. Regular Audits.

Large enterprises often employ dedicated treasury or payments teams to handle this, while smaller businesses may rely on outside consultants.

Impact on consumers

While merchants bear the direct cost of interchange fees, consumers are indirectly affected. Higher merchant costs are frequently passed on in the form of increased retail prices and, in some cases, passed on directly via surcharges. Yet American consumers have grown accustomed to lucrative rewards programmes, which are effectively funded by these higher merchant costs.

This dynamic creates tension between merchants, card issuers, and cardholders: merchants see interchange as an unfair subsidy for affluent cardholders who use premium rewards cards, while issuers argue that rewards drive consumer spending and loyalty, and taking away rewards would cause pandemonium amongst cardholders. In the EU, where interchange is capped, rewards programmes still exist but lack ubiquity and are notably less generous.

Looking ahead: future trends

Several developments could shape the trajectory of US interchange in the coming years:

• Regulatory Pressure – Renewed legislative proposals in Washington occasionally resurface, particularly from merchant advocacy groups pushing for credit fee caps.
• Technological Change – Alternative payment methods such as real-time payments, account-to-account transfers, and mobile wallets could erode reliance on card-based payments.
• Merchant Collaboration – Large merchants have begun banding together to negotiate with networks, potentially shifting market dynamics.
• Consumer Expectations – As consumers demand seamless, low-cost payments, pressure may mount on issuers to rethink fee structures.

It should be made clear that it will take major advancements on all the aforementioned developments to create meaningful change. In the immediate future, this seems unlikely. For European merchants, staying informed about these shifts is crucial to long-term planning.

Final thoughts

For European merchants, the contrast between the predictable, regulated EU interchange framework and the opaque, sprawling US model cannot be overstated. Entering the US market without understanding interchange is a recipe for cost overruns and diminished profitability.

The takeaway is simple: in the EU, interchange may be a background factor. In the US, it is a strategic necessity. Merchants that invest in understanding and managing interchange will enjoy a competitive edge, while those that ignore it risk eroded margins and reduced operational flexibility.

About the author

Dan Carter has worked in the payments industry for 13+ years. As the Head of Global Payment Strategy at Redbridge Debt and Treasury Advisory, he works with clients around the globe on the best ways for merchants to optimise the payments value chain. As of late, he is particularly interested in the cross sections between rapid technology proliferation, payments, strategy, and process excellence.

 

 

About Redbridge

Redbridge Debt and Treasury Advisory  is a leading financial management partner to corporations around the globe. It is committed to providing each client with all the information required to make the best decisions and optimise their financial performance. Redbridge’s teams are located in Houston, New York, Chicago, Paris, Geneva, and London.