💱 Interchange and merchant pricing around the world

The three layers of the price a merchant pays

The price a merchant pays on a card payment breaks down into three separate amounts, set by three different parties. Interchange flows from the acquirer to the bank that issued the card. Scheme fees pay the network and are charged on both sides at once. The acquiring margin goes to the party that processes the payment and carries the risk. The total goes by two names depending on the market. It is the merchant discount rate (MDR) in the Americas, Asia, and Africa, and the merchant service charge (MSC) in the UK and continental Europe. Both terms cover the same set of fees.

This breakdown assumes a four-party model, in which the cardholder, the issuer, the acquirer, and the merchant are organized around a central network. The three-party model combines issuing and acquiring in a single operator. American Express, when it deals directly, and Discover, on its own network, both issue and acquire themselves. No interchange then passes between two institutions, and the merchant is billed a single MDR. The distinction has legal consequences. IFR Article 1(3) excludes three-party schemes from its scope. The exclusion no longer applies when they issue under license or through an agent, a point settled by the Court of Justice of the European Union in Case C-304/16 in 2018. American Express’s OptBlue program, which outsources acquiring for small merchants to third-party providers, is the main US exception to this model.

Europe: a hard cap, and what it leaves out

Regulation (EU) 2015/751, known as the IFR (Interchange Fee Regulation), governs the interchange fees charged on card-based payments in the European Economic Area. It has become the global benchmark for interchange regulation. Article 3 caps consumer debit at 0.2% of the transaction value, and Article 4 caps consumer credit at 0.3%. The caps have applied since December 9, 2015, and the business rules since June 9, 2016. The regulation gives member states an option on debit, in three forms: a lower rate, a flat fee of 5 euro cents combined with the 0.2% cap, or a national weighted average of 0.2%. That last option expired on December 9, 2020.

Cards issued outside the European Economic Area fall outside the IFR. They are covered instead by the antitrust commitments that Visa and Mastercard made to the European Commission in 2019, which were made legally binding. The rates are 0.2% for debit and 0.3% for credit on card-present transactions, and 1.15% and 1.5% on card-not-present transactions. The Commission put the average reduction at about 40% (IP/19/2311, April 29, 2019). Originally set to run for five years and six months, the commitments were voluntarily extended to November 2029 (European Commission, July 2024). These four rates drive the interchange portion of the cost of accepting foreign customers, including inbound tourists.

The UK carried the IFR over into domestic law after Brexit. Its Article 3 still prohibits interchange above 0.2% on a UK debit card transaction. Traffic between the UK and the EEA, no longer intraregional, has since fallen under Visa’s and Mastercard’s interregional rates. The regulator estimated the extra cost to UK merchants and their customers at £150 million to £200 million a year (PSR, market review MR22/2, final report, December 2024). It concluded that a price cap was the only effective remedy. Then, on October 10, 2025, it dropped an interim cap while it develops a methodology. No cap currently applies on that corridor.

• The cap protects only the domestic consumer mix: business or international customers put the merchant back outside its scope.
• Commercial cards are not capped and are rarely negotiated: their share of the mix is the first number to pull before any RFP.
• Withdrawals are out of scope (Art. 1(3)), which is why high interbank withdrawal fees persist alongside capped payments.
• Merchants can invoke Article 9: a European acquirer cannot refuse an unblended quote. It can only agree to a single rate if the merchant expressly asks for one.

The United States: a cap on debit, antitrust for everything else

The Durbin Amendment, implemented by the Federal Reserve Board’s Regulation II (12 CFR Part 235), has governed US interchange since 2011 and covers debit only. The cap is 21 cents per transaction plus 5 basis points of the transaction value. Issuers that meet the Fed’s fraud-prevention standards can add a 1-cent fraud-prevention adjustment. The cap applies only to issuers with at least $10 billion in assets. No law caps US credit interchange. That gap accounts for most of the difference in acceptance costs between the US and Europe.

On the same debit product, one average is roughly double the other. A merchant whose customers bank with community banks or credit unions therefore pays markedly higher interchange than one whose customers bank with the large issuers. That difference comes from the statutory exemption for issuers below the asset threshold, not from weak negotiating. The merchant has no control over where its customers bank. It can neither anticipate the exemption nor work around it. Its only option is to measure the impact by requiring its acquirer to break down debit interchange between covered and exempt issuers.

Regulation II carries a second obligation, which concerns how transactions are routed rather than what they cost. It often saves merchants more than the cap itself. Every debit card must be routable over at least two unaffiliated networks. The Federal Reserve Board explicitly extended that requirement to card-not-present transactions in July 2023. A US merchant can therefore choose between the brand’s network and a competing PIN debit network, such as STAR or Accel (Fiserv), NYCE or Culiance (FIS), or PULSE (Discover), depending on the card. The mechanism serves the same purpose as least-cost routing in Australia but is implemented differently. The US regulator requires that the choice be available, while the routing decision itself is configured merchant by merchant.

In the US, credit interchange is shaped by private litigation rather than by statute. The MDL 1720 case, Payment Card Interchange Fee and Merchant Discount Antitrust Litigation, is before the US District Court for the Eastern District of New York. It produced a settlement announced on November 10, 2025, with a headline value of about $38 billion. The settlement calls for a 0.1 percentage point cut in interchange for five years and a 1.25% cap on standard consumer rates for eight years. It would also end the Honor All Cards rule, a change whose structural impact outweighs the headline figure. Merchants could then accept or decline by category: commercial cards, premium rewards cards, and standard cards. Judge Brian Cogan granted preliminary approval on June 9, 2026, but final approval, to be considered at a November 16, 2026, hearing, is not guaranteed. A previous settlement was rejected in 2024, and the major merchant trade groups say the concessions fall short.

Because credit is uncapped, US merchants have a tool that European law denies them: the surcharge, an extra amount added to the price when a customer pays by credit card. Network rules allow it on credit cards, up to the merchant’s actual cost of acceptance. Visa has capped surcharges at 3% since April 15, 2023, and Mastercard at 4%. Surcharging remains prohibited on debit and prepaid cards. The customer’s state also matters, since several states restrict or ban the practice. Merchants need to check this layer state by state before any rollout.

Australia: caps, least-cost routing, and an end to surcharging

The Reserve Bank of Australia has regulated card systems through its Payments System Board since 2003. It designates schemes, sets interchange standards, and governs how transactions are routed. No other jurisdiction has gone as far, and other regulators have borrowed its tools. Its approach differs from Europe’s on one decisive point. The EU regulation caps a price. The Australian standards cap a price and organize competition between networks on the same card, by giving the routing choice to the acquirer rather than the cardholder.

The July 2025 consultation had proposed 6 cents and 0.12%, and those figures were not adopted. Two provisions in this package exist nowhere else in hard law. Capping interchange on foreign-issued cards closes a loophole that neither the EU nor the UK has closed. The target is a setup that pairs an online platform with a virtual payment card. The platform charges the customer’s domestic card, then pays the Australian hotel with a foreign-issued virtual card. The merchant then bears interchange far removed from the level the regulation intended. The surcharging ban, for its part, ends two decades of the opposite approach. Australia had been the first jurisdiction to allow the practice.

New Zealand adopted the model through a different instrument, the Retail Payment System Act 2022. The law empowers the Commerce Commission to issue binding network standards without going back to Parliament each time rates are revised. The Mastercard and Visa Interchange Fee Network Standard 2025 received a final decision on July 17, 2025, and was consolidated on August 14, 2025. It took effect on December 1, 2025, and its caps on foreign-issued cards have applied since May 1, 2026. Merchants are expected to save NZ$90 million to NZ$100 million a year (Commerce Commission, 2025).

Elsewhere: hard caps, voluntary commitments, or nothing

At least 10 jurisdictions regulate interchange or the MDR, using four different instruments. The instrument chosen determines how far the regulation reaches. A legal cap binds everyone and can be checked on a statement, while a voluntary commitment covers only the merchants named in its terms. A competition authority standard can be revised without going back to the legislature, while private antitrust litigation takes effect only after court approval, sometimes years later.

Brazil capped interchange in two stages, the second closing the workaround that followed the first. The Banco Central do Brasil’s Circular 3.887 has applied since October 1, 2018. It capped domestic debit interchange at a 0.5% weighted average and 0.8% maximum per transaction. The average observed rate fell from 0.79% in Q3 2018 to 0.51% in Q1 2020 (Banco Central do Brasil, Estudos Especiais nº 106). Issuers then shifted part of their issuing to prepaid, which the rule did not cover. Resolução BCB nº 246/2022 closed the loophole from April 1, 2023, capping prepaid at 0.7% and tightening debit to a hard 0.5% cap. Brazilian credit remains uncapped.

Canada has no legal cap and regulates credit interchange through a voluntary commitment by the networks. Under regulatory pressure, Visa and Mastercard agreed to lower average credit interchange to 0.95% for card-present transactions, with a further 0.1 percentage point cut online. The commitment has applied since October 19, 2024, to merchants with up to C$300,000 in annual Visa sales or C$175,000 in Mastercard sales. About 90% of card-accepting merchants are covered, with fee cuts of up to 27%, or as much as 37% for some profiles (Department of Finance Canada and CFIB, 2024). Merchants above those thresholds are not covered, since their terms are already negotiated bilaterally. Canadian debit is not part of the debate, because Interac has historically operated with no interchange between members.

In China, interchange is set by the state, not by the network. NDRC/PBOC notice 发改价格〔2016〕557号 has capped domestic interchange at 0.35% on debit and 0.45% on credit since September 6, 2016. A network fee of about 0.0325% applies on top on the debit side. Access to domestic clearing requires a separate license. American Express operates through a joint venture approved in 2020, and Mastercard through NUCC, licensed by the People’s Bank of China on November 17, 2023. Visa has not yet obtained one. Outside China, UnionPay rates range from about 0.20% to 1.50% depending on the country, merchant category code, product, and channel (UnionPay International, Fees by Market).

India’s zero MDR: when interchange is zero by law

Since January 1, 2020, the MDR on RuPay debit cards and BHIM-UPI has been zero by law. The legal basis is Section 269SU of the Income-tax Act 1961, inserted by the Finance (No. 2) Act 2019, which prohibits charging an acceptance fee on these instruments. India is the only major market to have taken interchange to zero on its national scheme. The regime stems from a statutory ban, not from a deal won by merchants. Issuing RuPay debit therefore earns issuers no revenue, and it continues only because of regulatory pressure and government incentives.

The regime creates a deliberate distortion. Visa and Mastercard debit cards issued in India remain on a negotiated MDR. An issuer looking for revenue on debit therefore steers its portfolio toward the international brands, while the government in turn promotes RuPay through financial inclusion programs. Brazil took the opposite path. Resolução BCB nº 246/2022 applies to Elo just as it does to Visa and Mastercard, with no advantage reserved for the domestic scheme. The two regulations pursue different goals. Brazil’s seeks competitive neutrality between schemes, while India’s openly favors the national scheme.

Credit in India has followed a separate path, driven by linking cards to the UPI rail. RuPay is the only network allowed to link a credit card to UPI. Credit thus becomes an instrument that can be used by scanning a QR code, a shift no other market has achieved at scale. RuPay’s share of credit reportedly rose from about 3% to 16–18% in two years, according to secondary sources that have not been cross-checked and should be treated with caution. Acceptance outside India goes through RuPay Global, issued on the Discover Global Network and JCB platforms. RuPay has no international network of its own.

The regime is under pressure. In 2025, the Payments Council of India called for a 0.3% MDR on UPI to be reintroduced for large merchants only. The revenue threshold under discussion is ₹40 lakh (₹4 million), and no decision has been made to date. A second change concerns network choice at issuance. A Reserve Bank of India circular in effect since September 6, 2024, bars issuers from exclusive agreements with a network. It requires them to offer a choice of network at issuance and at renewal. The rule does the job of IFR Article 8, applied to the contract rather than to the card. The customer picks one network, and the card does not carry two applications.

No cap: substitution sets the price

Most markets worldwide apply no interchange cap at all. There, the price of acceptance is set by competition between payment methods. An account-to-account rail that is free, or nearly free, puts pressure on the MDR without any regulator having to write a rule. The mechanism works through substitution. Merchants steer their checkout flow toward the cheapest payment method, and the MDR cannot stay far above the cost of the available alternative for long without cards losing volume. Over the past ten years, no other mechanism has cut the cost of acceptance as much.

Europe has two older national schemes whose acceptance cost is zero or set by public authorities. BankAxept, run by Stø AS since 1991, is the only major European card scheme with no interchange fee. It works offline and serves as the designated cash distribution arrangement at NorgesGruppen stores (Norges Bank, December 2025). Denmark’s Dankort, operated by Nets, long had its merchant fees set by law, at a level required to cover exactly the costs of the operator and the banks. A broad political agreement in June 2025 aims to strengthen it and open up its acquiring (Norges Bank, Payments in the Nordics, December 2025). Both schemes achieve a zero or regulated cost without any interchange cap having been enacted.

In markets with neither a cap nor a dominant substitute rail, pricing comes from market structure. In Nigeria, Verve (Interswitch, 2009) dominates issuing on the strength of its interchange cost and ATM acceptance, with more than 70 million cards issued (Interswitch, press release, October 2025). In Turkey, TROY (BKM, 2016) reached a 25.3% market share by value at the end of 2025, up from 18.3% a year earlier (BKM, press release of January 23, 2026). In Israel, Shva is the single switch connecting terminals, gateways, and card companies. MDR levels there are set against an entrenched national scheme or a single switch more than through competition among acquirers.

Blended, interchange++, flat rate: four ways to bill a merchant

A pricing model is the arrangement by which an acquirer passes transaction costs and its own fee on to the merchant. There are four models, and the one chosen determines which party keeps the benefit of an interchange cut. Under blended pricing, the acquirer applies a single rate to all cards and keeps the difference between that rate and the actual cost of each transaction. Under interchange++, it passes through actual interchange and actual scheme fees, then adds an explicit contractual margin, hence the two “plus” signs in the name. In between sits interchange+, which passes through interchange at cost but folds network fees into the margin. The fourth model, the flat rate, shows a single rate, often with a fixed per-transaction fee, and no breakdown at all.

The effective MDR is the ratio of all payment-related fees over a period to the volume processed over the same period. It appears on no price list and can only be measured after the fact. It includes dispute fees, authorization fees (charged even on declined transactions), and any monthly minimums billed. Two offers at the same headline rate can differ by tens of basis points once applied to real traffic. A merchant’s card mix almost never matches the example the acquirer used. Comparing two proposals therefore requires a simulation on the merchant’s own data, not a reading of the advertised rate.

• Demand the scheme fee schedule, not just interchange: it is the layer that has risen most in the past ten years, and it is capped nowhere.
• Get the margin written in basis points and as a fixed fee, separately, and tie it to verifiable volume tiers.
• Ask for volume broken down by card category: consumer, commercial, domestic, intraregional, interregional. The mix explains the bill better than the rate.
• Check how regulatory cuts are handled: negotiate an automatic pass-through clause before signing, never after.
• Negotiate the fee schedule as hard as the rate: disputes, authorizations, monthly minimum, non-compliance fees, currency pricing.

The US market adds a pricing model rarely seen elsewhere: tiered pricing. The acquirer sorts each transaction into qualified, mid-qualified, or non-qualified, based on processing conditions and data that the merchant controls poorly, such as a manually keyed card, a missing address, or late capture. A downgraded transaction drops into a more expensive tier even though the underlying interchange has not changed. The price difference therefore goes to the acquirer and reflects no increase in network costs. Every US acquirer can quote interchange plus, which removes this downgrade mechanism.

Reading an acquirer statement

The acquirer statement is the periodic document in which the acquirer lists the transactions processed and the fees charged over a period. It is the only document that shows the price actually paid; the contract only sets the parameters. Reading it means assigning each line to one of the three price layers or to the fee schedule. Any line that cannot be assigned calls for a written explanation from the acquirer. On an unblended statement, each transaction shows at minimum a reference, a gross amount, a brand, a card category, a country of issue, and the applicable interchange.

REFERENCE ............. 24332616192000012345678     ARN, unique per transaction
PROCESSING DATE ....... 2026-07-11
GROSS AMOUNT .......... 100.00 EUR
BRAND ................. Visa
CARD CATEGORY ......... Consumer Debit              sets the applicable cap
ISSUER COUNTRY ........ ES                          intra-EEA -> IFR applies
CHANNEL ............... e-commerce, 3DS authenticated
--- breakdown -----------------------------------------------------
  INTERCHANGE ......... 0.2000%       0.20 EUR      IFR art. 3 cap
  SCHEME FEES ......... breakdown by component:
      authorization ... fixed                       also billed on declines
      clearing ........ fixed
      brand license ... ad valorem
      online service .. ad valorem
  ACQUIRER MARGIN ..... ad valorem + fixed          only negotiated line
--- outside the breakdown ------------------------------------------
  DISPUTE ............. billed per case, whatever the outcome
  MONTHLY MINIMUM ..... charged if volume falls short of the threshold
  NON-COMPLIANCE ...... scheme program penalties, if any
--------------------------------------------------------------------
CHECK: sum of lines = gross submitted minus net amount received

• Reconcile three documents: the batch submission report, the payment advice, and the statement. An unexplained gap is a reject, a dispute, or a billing error.
• Recalculate interchange on capped lines: on an intraregional consumer card, the rate must match the legal cap. Challenge any overcharge, with supporting evidence.
• Isolate scheme fees and track them month by month: they creep up slowly, silently, and without notice.
• Segment by the BIN’s country of issue, not by country of sale: the issuer’s country is what takes a transaction outside the scope of a cap.
• Count authorization fees on declined transactions: a high decline rate costs you twice, in lost sales and in fixed fees.
• Check the brand mix on co-badged cards: it is the only indicator that reveals a misconfigured routing setup, in Europe and Australia alike.

Finally, entering a market requires identifying the institution that holds the acquiring license. Ask in writing for the name of the acquiring bank and the network agreement that covers it. That check prevents most unpleasant surprises. When a provider resells another company’s acquiring, it cannot quote interchange++, provide a per-network breakdown, or resolve a dispute quickly. The question applies in every market, and the answer alone determines what the merchant will later be able to read, challenge, and negotiate.