Interchange Income Is Under Pressure, and Rising Network Fees Make It Worse
How interchange caps, state legislation, and expanding Visa and Mastercard scheme fees are squeezing card issuer profitability
US card issuers are entering 2026 with card program profitability under pressure from multiple directions. Interchange income is being challenged through courts, state legislatures, and proposed federal action. At the same time, Visa and Mastercard network (scheme) fees are expanding in scope and rising in effective rate, often faster than payment volume growth.
The combined effect is margin compression that rarely shows up in a single headline. Interchange revenue is at risk of going down or being carved out of portions of transactions. Network fee expense continues to move up through new fee lines, broadened definitions, and higher rates tied to digital enablement and tokenized commerce. In practice, issuers experience a double squeeze that compounds across the P&L.
This article focuses on a simple idea: interchange caps and interchange carve-outs are only half the story. The other half is the growing cost stack issuers pay directly to the networks.
Interchange caps and interchange carve-outs: the 2026 revenue picture
Interchange pressure is no longer hypothetical, and it is not coming from one source. Multiple pathways are converging on the same outcome: less interchange revenue per dollar of spend, or less spend eligible for interchange in the first place.
The Visa/Mastercard equitable relief settlement, amended in November 2025, proposes a 10 basis point reduction in the combined average effective credit interchange rate for five years, along with a 1.25% cap on standard consumer cards for eight years. It also expands merchant rights to decline premium and commercial card types. The settlement is awaiting court approval in the Eastern District of New York, and public reporting has suggested the legal process could run through late 2026, with implementation potentially beginning in fiscal 2027 if approved.
At the state level, the Illinois Interchange Fee Prohibition Act (IFPA) was largely upheld by a federal court in February 2026. The law bans interchange on the tax and gratuity portions of card transactions. Although the ABA and co-plaintiffs have appealed to the Seventh Circuit, the July 1, 2026 effective date remains in view. For restaurants, the impact is not abstract: on a $50 check in Chicago with $4.08 in tax and an $8 tip, roughly 24% of the transaction value drops out of the interchange calculation.
That pattern is spreading. Colorado's HB25-1282 passed the House in 2025 before dying in a Senate committee, and interchange legislation has been reintroduced in 2026 with movement in committee. Delaware has advanced a bill addressing interchange on tips, Rhode Island is in committee, and nearly a dozen states have introduced similar measures modeled on Illinois.
At the federal level, the Credit Card Competition Act continues to build bipartisan support, including endorsement from President Trump earlier this year. If enacted, routing competition on credit cards could compress credit interchange economics further, particularly for programs that rely on premium interchange to fund rewards and acquisition.
Political pressure is also intensifying because the "swipe fee" headline number keeps getting larger. U.S. swipe fees reportedly reached $198.25 billion in 2025, up from $187.2 billion in 2024, and up sharply since the pandemic. That figure is now cited routinely in legislative hearings and press statements, and it is shaping the policy environment issuers will operate in through 2026 and beyond.
The second front: Visa and Mastercard scheme fees are rising as interchange comes under pressure
Most interchange debates focus on a single transfer payment: the interchange that flows from the acquirer through the network to the issuer. That is issuer revenue, and it is the target of caps, settlement provisions, and carve-outs.
Network fees are different. These are charges assessed by Visa and Mastercard on principal members, including issuers and acquirers, for access to network infrastructure and services. They cover authorization, clearing and settlement, security and fraud programs, digital enablement, tokenization infrastructure, credential lifecycle management, and a growing menu of "value-added services" that increasingly show up as embedded fee lines.
Where interchange is issuer revenue, network fees are issuer cost. Network fee revenue goes to Visa and Mastercard, not to issuers and not to acquirers.
And that revenue is accelerating.
In its March 2026 Conclusions Paper, the Reserve Bank of Australia found that scheme fees "have grown faster than transaction values in recent years, putting upward pressure on card payment costs for card network participants and merchants," and concluded that scheme fees, particularly for credit cards, "are not subject to effective competitive constraints." CardTraq's own data across its global client base shows a roughly 30% increase in network fee unit cost over the past five years, well above the growth in underlying transaction volumes over the same period.
The network earnings confirm the trend:
Visa reported fiscal Q1 2026 net revenue of $10.9 billion, up 15% year over year, with data processing revenue (the line most closely tied to per-transaction network fee activity) up 17%. Total processed transactions grew 9%.
Mastercard reported Q4 2025 net revenue up 18% year over year, with value-added services and solutions revenue up 26%. Payment network net revenue, which includes scheme fees assessed on issuers and acquirers, grew 12%, while gross dollar volume grew 7%.
At both networks, revenue is outpacing volume growth by a wide margin, and the gap is widening.
Both companies are explicit that services revenue is strategic. Over 50% of Visa's e-commerce transactions and nearly 40% of all Mastercard transactions are now tokenized, and each tokenized transaction touches fee-bearing network infrastructure. As tokenization and digital commerce become the default, the "background plumbing" of payments becomes a fee-bearing surface area. Token lifecycle activity, authentication, account updater events, and credential management can all trigger incremental costs that are difficult to see unless issuers track scheme fees at transaction or event level.
Unlike interchange, network fees are not currently constrained by a regulatory ceiling, a settlement cap, or a state-by-state carve-out framework. They sit in the one layer of card economics that most policy proposals do not touch.
April 2026 fee changes: how network costs expand in practice
To make the scheme fee trend concrete, consider a partial set of Visa and Mastercard changes taking effect in April 2026. Depending on an institution's role (issuer, acquirer, or both), its processor model, and its pass-through agreements, these changes can affect economics directly or indirectly.
Visa's Digital Commerce Service Fee is increasing on domestic card-not-present transactions and cross-border transactions, and it is expanding to cover account updater activity (including VAU and RT-VAU), token authentication (TAVV), credential updates (VDCU), and token lifecycle events (VCES). The net effect is that the operational steps required to keep tokenized credentials functional now carry explicit, expanding fee exposure.
Visa is also sunsetting its Level 2 CEDP interchange incentives on April 17, 2026. Merchants that previously qualified for reduced rates through basic enhanced data will now need Level 3 data to qualify. While the operational burden falls on acquirers and processors, the downstream economics affect the full ecosystem, including issuer program pricing and merchant acceptance dynamics.
Visa Card Present Token Fees taking effect April 1 add cost to the growing volume of contactless transactions that use tokenized credentials. As tap-to-pay becomes the default form factor, these fee lines become more economically relevant over time.
On the Mastercard side, the Fallback Avoidance Fee and Force Post Transaction Fee were announced for January 2026, with some processors deferring pass-through until April. The Undefined Authorization Fee increased, with another increase already announced for January 2027. Mastercard's MOTO fee expansion and the introduction of time-based authorization validity fees create additional cost sensitivity to operational behavior, authorization quality, and clearing timing.
This is one release cycle. In practice, issuers and acquirers see meaningful scheme fee change sets twice per year, and the list tends to grow as more services and definitions become monetized.
The issuer profitability double squeeze: interchange down, network fees up
For issuers, the combined effect is straightforward even when the mechanisms are complex. On the revenue side, interchange income faces reduction from settlement provisions, carve-outs from state legislation, and potential compression from routing competition. These are active, moving variables in 2026, not theoretical scenarios.
On the cost side, network fees paid to Visa and Mastercard continue to expand through new fee lines, higher rates, broader scope, and fees tied to digital enablement and token lifecycle activity. Each semi-annual release bulletin adds incremental complexity to the issuer cost structure.
The operational challenge is that interchange is visible and well understood. Network fees are fragmented across hundreds or thousands of fee lines, are sensitive to operational behavior, and are often managed at a summary level. When fees are tracked only in aggregate, margin erosion can appear as unexplained variance rather than a diagnosable driver that can be managed.
Why acquirers and ISOs face a parallel margin problem
Acquirers face a similar squeeze, even though it presents differently. Merchants expect interchange relief to show up as lower costs, particularly when the headlines focus on caps and carve-outs. At the same time, the acquiring side is absorbing higher and broader network fee expense tied to authorizations, tokenization-related activity, and "infrastructure" fee lines that did not exist years ago.
Many older merchant agreements were not written with today's fee taxonomy in mind. When pass-through language is incomplete, or pricing platforms don't stay updated, every new fee line can become direct margin leakage. Acquirers can either absorb the increase or attempt a repricing conversation that is difficult in a politically charged environment that assumes "swipe fees" should be going down.
In that scenario, the net benefit to merchants from interchange relief may be smaller than the headline number, and the margin compression for acquirers may be larger than pricing models predict.
What issuers and acquirers should do now
Track network fees with the same rigor you apply to interchange. If you can produce a detailed interchange breakdown by card type, transaction method, and merchant category, but cannot produce an equivalent view for scheme fees, you have a governance gap in what may be your fastest-growing cost line.
Model net impact rather than debating each fee layer in isolation. A few basis point reduction in interchange is meaningful, but it can be offset by cumulative scheme fee increases across authentication, token lifecycle events, declines, cross-border, and operational behavior. The relevant question for profitability is the combined delta.
Build a forward-looking view. Visa and Mastercard publish changes months before effective dates through network bulletins. If you only react when fees hit an invoice, you are behind. A forward model is the difference between managing costs and explaining them after the fact.
Interchange is getting the attention. Network fees are getting the revenue. Issuers and acquirers that manage both layers with equal rigor will be better positioned to protect card program profitability through 2026 and beyond.
CardTraq provides transaction-level visibility into network (scheme) fees for issuers and acquirers globally. If you cannot clearly quantify what you are paying Visa and Mastercard in network fees, and what is driving those costs, that is the problem we solve.
Steven Leitman is Managing Partner and CEO of Consulting Resource Group, a boutique payments consultancy specializing in card network fee optimization for issuers, acquirers, and ISOs.