The Scheme Fee Reckoning: Why Capped Interchange Never Landed

The IFR regulated exactly one component of card acceptance cost: interchange, the fee paid to the cardholder's issuing bank on every transaction. It did not touch the scheme fee — the separate charge Visa and Mastercard levy for running their networks — and it did not touch whatever margin a processor adds on top.

That distinction matters because interchange was never the only lever available to the schemes. Once one input to their revenue was fixed by regulation, the schemes retained full commercial freedom over the other. Retailers who assumed a capped interchange fee meant a capped total cost were making an assumption the regulation never actually promised.

That assumption is now the subject of a formal European Commission investigation. Regulators are examining whether Visa and Mastercard's scheme fees and the way they're structured have undermined the intent of the IFR by extracting through one channel what was restricted in another, according to reporting on the EU's probe into Visa and Mastercard.

What makes this investigation notable is its scope. It didn't stay confined to retailers and their complaints about checkout costs. It has widened to include terminal providers and payment services companies — the intermediaries who sit between merchants and the schemes and who are themselves subject to scheme fee structures they can't meaningfully negotiate, as coverage of the widening Visa and Mastercard probe describes.

That widening tells you something about how the Commission views the problem. This isn't being treated as a merchant grievance about pricing. It's being treated as a question about market structure — whether two networks that clear roughly two-thirds of euro zone card payments between them have the ability to set terms that no participant in the payment chain, from acquirer to terminal vendor to retailer, has any real power to push back on.

The retail trade association EuroCommerce has put a figure on what regulators are investigating. Its estimate is that scheme fees cost European retailers roughly €1.5 billion a year, spread across more than 800 distinct scheme fees — a fee catalogue large enough that most merchants, and arguably most of their acquirers, cannot fully reconstruct what they're actually paying for, per analysis summarising EuroCommerce's scheme fee estimate.

Retailers' argument, in EuroCommerce's framing, is direct: this is roughly the order of magnitude that offset the savings the IFR was supposed to deliver. Cap one fee at 0.2–0.3%, and if the uncapped fee sitting next to it grows to absorb the difference, the net saving to the merchant approaches zero even though the regulation worked exactly as designed on paper.

Eight hundred distinct fees is also, on its own, a structural problem independent of the total euro amount. A fee schedule that large is not something a merchant finance team reviews line by line before signing an acquiring contract. It's something a merchant discovers, if at all, months later in a statement that blends everything into a single settled amount. Complexity at that scale isn't incidental — it's what makes the aggregate cost hard to see and harder to contest.

The UK's Payment Systems Regulator (PSR) approached the question from the acquirer side rather than the merchant side, and reached a compatible conclusion. Its analysis found that average scheme and processing fees charged to acquirers rose by at least 25% between 2017 and 2023, measured as a share of transaction value, according to the Redbridge market intelligence summary of UK scheme fee regulation.

That's a UK finding rather than an EU one, and UK card regulation sits outside the IFR's scope entirely. But it corroborates the EU picture from an independent regulator using different data: fees charged for running the scheme network, as distinct from interchange, moved decisively upward over the exact period during which capped interchange should have been reducing merchants' total cost of acceptance.

Acquirers don't absorb cost increases indefinitely — they pass them through. A 25% rise in what an acquirer is charged for scheme and processing services doesn't stay with the acquirer; it shows up in the rate the acquirer quotes the merchant, usually folded into a single blended number that gives no indication of which component moved.

Two regulators, two methods, one direction. The European Commission is examining whether scheme fee structures undercut the intent of a cap that only ever applied to interchange. The UK's PSR measured a 25%-plus rise in scheme and processing costs over exactly the years that cap should have been saving merchants money. Neither finding depends on the other, and both point the same way.

It's worth being precise about why the scale of Visa and Mastercard's position makes this more than a commercial disagreement. The two schemes together handle around two-thirds of card payments in the euro zone. At that level of concentration, a merchant has no real alternative rail to route around a fee increase — card acceptance means accepting Visa and Mastercard's terms, full stop, for the large majority of transactions.

That's precisely why the IFR existed in the first place: interchange had proven itself to be a fee that competitive pressure wasn't going to bring down on its own, because merchants couldn't opt out of accepting the cards their customers wanted to use. The evidence now emerging suggests the same dynamic simply reasserted itself through the fee category the regulation didn't reach.

A few things follow from that:

• Capping one input doesn't cap the total cost if the entity setting the price controls more than one input.
• Complexity is not neutral. Eight hundred distinct fee lines make it materially harder for any merchant, acquirer, or regulator to see where money is actually going.
• Concentration removes the market's usual corrective. When two networks clear most of the volume, merchants can't shop the fee away by switching networks.
• The investigation's widening to terminal providers and payment companies signals regulators think the effect isn't confined to the merchant-facing side of the chain.

None of this means scheme fees are illegitimate — running a global card network has real costs, and scheme fees fund fraud tooling, network reliability, and dispute infrastructure that merchants also rely on. The issue regulators are examining is whether the fee structure and its opacity go beyond funding that infrastructure and into extracting margin that a capped interchange fee was supposed to keep in check.

Here's the part that connects the regulatory story to what actually happens at your payment provider's monthly invoice. Most merchants don't see interchange, scheme fees, and processor margin as three separate numbers. They see one blended rate — something like "1.85% + €0.25" — quoted once at signing and rarely revisited.

Blended pricing was never designed to conceal scheme fee increases specifically. But it has that effect by construction. If your processor absorbs a scheme fee increase into a rate that was already bundling three cost components into one, you have no way to notice that the increase happened at all. The total simply is what it is. You can't ask "did the scheme fee just go up 25%?" if your invoice was never itemised in a way that would let you check.

This is exactly the mechanism that let the gap between the IFR's promise and its outcome go largely unnoticed by individual merchants for a decade, even as it built into a €1.5 billion annual figure at the aggregate level. Nobody's monthly statement said "scheme fee, up." It said "processing fee, 1.85%," the same as it said the year before and the year after, while the composition underneath shifted.

This is the point of the whole exercise for a merchant deciding how to accept cards: you cannot manage a cost you cannot see, and blended pricing is specifically designed not to show you this cost.

Cost+ prices every transaction with IC++ (Interchange Plus Plus), which separates the bill into its three real components instead of folding them into one number:

• Interchange — set by Visa, Mastercard, and other schemes, passed through at the rate the issuing bank actually charges.
• Scheme fee — the network's own charge, shown as its own line rather than absorbed into a blended rate.
• Cost+ markup — our margin, disclosed separately, currently 0.50% plus €0.15 per authorization for eligible low-risk merchants.

With that breakdown, a scheme fee increase is visible the moment it happens, on the transaction where it happens. You don't have to take anyone's word that costs are fair. You can watch the interchange line stay flat against the regulated cap while checking whether the scheme fee line is doing something different — which is exactly the comparison the European Commission and the UK's PSR are making at the market level, except now you can make it at your own statement level.

This doesn't mean IC++ makes scheme fees cheaper — Cost+ doesn't set Visa's or Mastercard's pricing any more than a blended processor does. What it means is that you're no longer relying on your processor to have not passed along an increase quietly, because there's nothing quiet to pass along. The number is on the statement, labelled, every time.

Capped interchange was a real policy win in 2015, and it did exactly what it was designed to do: it fixed one input in the cost of accepting cards. What it didn't do — because it wasn't designed to — was fix the other two. Regulators on both sides of the Channel are now finding evidence that scheme fees moved to absorb roughly the gap the cap created, at a scale EuroCommerce puts at €1.5 billion a year across more than 800 fee types, and at a rate the UK's PSR measured at 25%-plus growth in six years.

Merchants who only ever saw a single blended rate had no way to notice this happening to their own costs. Merchants on IC++ pricing do, because the interchange line, the scheme fee line, and the markup line are three separate numbers instead of one.

If you want to see where your own transactions actually sit — how much is interchange, how much is scheme fee, and how much is markup — try our fee calculator or talk to our sales team about moving to IC++ pricing that shows you the whole bill instead of one number at the bottom of it.