An interchange cap is a limit, set by law or by a regulator, on the interchange fee paid on a card transaction. Interchange is the amount the merchant's bank, the acquirer, passes to the cardholder's bank, the card issuer, each time a card is used. The rates are set by the card networks, not negotiated by merchants, and they make up the largest part of what a merchant pays to accept cards. A cap replaces the network's rate with a ceiling.
Caps are a response to a long-running complaint from merchants and competition authorities that interchange is set collectively, is hard for merchants to refuse and tends to rise over time. They exist in the European Union, the United Kingdom, the United States (for debit cards only), Australia, China and a number of other markets. The form varies: a percentage of the transaction, a fixed amount per transaction, or a weighted average that a network must not exceed.
The European Union cap
The Interchange Fee Regulation, Regulation (EU) 2015/751, set the caps that have applied across the European Economic Area since December 2015. For consumer cards, interchange may not exceed 0.2 percent of the transaction value on debit and prepaid cards and 0.3 percent on credit cards. Member states may set lower limits for domestic debit transactions.
The regulation applies to schemes operating the four-party card model. A commercial card is outside the cap, and so is a scheme operating the three-party card model, unless it issues or acquires through licensed partners. Cards issued outside the area were not covered either, but in 2019 Visa and Mastercard gave binding commitments to the European Commission limiting the cross-border interchange on such cards to the same 0.2 and 0.3 percent in shops, with higher limits of 1.15 and 1.5 percent for online payments. The United Kingdom kept the domestic caps in its own law after leaving the Union.
The United States debit cap
In the United States the Durbin Amendment, part of the Dodd-Frank Act of 2010, directed the Federal Reserve Board to ensure that debit interchange is reasonable and proportional to the issuer's cost. The Board's Regulation II, in force since October 2011, sets the limit at 21 cents plus 0.05 percent of the transaction, with a further one cent for issuers that meet fraud-prevention standards.
The cap binds only issuers with consolidated assets of 10 billion dollars or more. Smaller banks and credit unions are exempt, which created two tiers of debit cards, usually called regulated cards and exempted cards. The exemption is one reason fintech companies issue debit cards through small partner banks. Credit card interchange is not capped in the United States. The Board proposed lowering the debit limit in 2023. In August 2025 a federal district court in North Dakota ruled that the fee standard exceeded the Board's authority, and an appeals court upheld that ruling in October 2026; the existing cap stayed in place while the litigation continued, so its level should be checked against current sources.
Caps elsewhere
Australia was the first major market to act. The Reserve Bank of Australia has regulated credit card interchange since 2003 and debit interchange since 2006, using benchmarks that the weighted average of a scheme's rates must not exceed, together with ceilings on individual rates. China sets debit and credit interchange by government direction. India has taken the idea furthest for domestic products: since 2020 merchants pay no merchant discount rate on RuPay debit cards and most UPI payments. Other jurisdictions, including Canada, have relied on voluntary undertakings from the networks instead of legislation.
Effects on merchants, issuers and cardholders
A cap lowers the wholesale cost of acceptance, but whether merchants see the saving depends on their pricing. Merchants on interchange plus plus pricing, typically larger ones, receive the reduction automatically. Those paying a single blended rate benefit only if the acquirer reprices. Studies of the European and American caps have generally found that large merchants gained more quickly than small ones.
Issuers lose revenue and adjust. After the American cap, large banks cut debit rewards and raised some account fees; in Europe, credit card rewards and interest-free periods became less generous. Fixed-amount caps can also raise the cost of very small payments: when the United States cap took effect, interchange on low-value debit transactions rose because networks moved those rates up to the ceiling.
Caps cover interchange only. The scheme fees that networks charge acquirers and issuers are not limited, and merchants in Europe have argued that increases in those fees have offset part of the saving, a point reviewed by European and British regulators.
Arguments for and against
Supporters argue that interchange is a price set without normal competitive pressure, that it is passed on to all shoppers in higher retail prices whether or not they use cards, and that it funds rewards enjoyed mainly by wealthier cardholders, the card rewards cross-subsidy. A cap, in this view, corrects a market failure at low cost.
Opponents argue that interchange pays for fraud protection, credit risk and innovation, that evidence of lower retail prices after caps is weak, and that consumers bear the cost through higher bank fees and fewer benefits. They also note that caps favour schemes and products outside their scope. Alternatives to a price cap include rules that let merchants steer or apply card surcharging, and competition measures such as debit routing choice.