If you’re a small or mid-sized business owner, you’ve probably heard buzz about the proposed Visa/Mastercard settlement and its potential to lower credit card processing costs. One of the headline items is a 1.25% interchange rate cap on “standard” credit cards.
At first glance, that sounds like a major win. But before you expect a big reduction in your merchant fees, it’s important to understand what this cap actually applies to—and how much (or how little) impact it may have on your business.
Let’s break it down.
1. The cap applies only to “standard” credit cards — and those make up a small portion of transactions
The interchange cap is limited to a narrow category: non-rewards, non-premium, non-commercial, basic “standard” consumer credit cards.
Here’s the catch:
- These cards represent a very small share of credit card transactions today.
- Over the past decade, card issuers have aggressively promoted rewards cards (cash-back, points, premium perks) because they generate higher interchange revenue.
- As a result, standard cards are increasingly rare in most merchant mixes, especially in retail, restaurants, convenience stores, and service businesses.
For many SMBs, only a single-digit percentage of their credit card volume may qualify for the 1.25% cap.
2. To benefit, merchants must be on an “Interchange +” (IC+) pricing model
This point can’t be emphasized enough:
If your business uses a flat-rate or tiered pricing plan, you almost certainly will not see this cap pass through to you.
Many processors continue to place SMBs on:
- Tiered pricing
- “Qualified / Mid-Qualified / Non-Qualified” structures
- Flat-rate blended pricing
Under these models, the processor keeps the difference between actual interchange and the price they charge you—so a decrease in interchange may never touch your invoice.
To receive the benefit of any interchange reduction (including this cap), you must be on:
- Interchange + (IC+)
- Or True Cost Plus pricing
If you’re unsure, check your statement—or ask your processor directly.
3. Issuers can—and likely will—reclassify “standard” cards to avoid the cap
Card issuers have a long history of adapting to new rules in ways that maintain their economics. Under the proposed settlement, issuing banks can change the classification of card accounts.
And based on past behavior, they probably will.
Expect issuers to:
- “Upgrade” standard card accounts to rewards or premium products
- Add new low-tier rewards to previously standard cards, removing them from the capped category
- Auto-convert older portfolios to higher-interchange products
Why? Because rewards cards generate more interchange than standard cards. Issuers are unlikely to leave that revenue on the table.
This means the already-small pool of “standard” cards could shrink even further.
4. So what does this mean for SMBs?
Here’s the bottom line:
- The 1.25% cap sounds impactful, but the financial benefit for most SMBs will be modest.
- The real savings depend on how much of your volume comes from standard cards—and for many merchants, that percentage is low.
- Your pricing structure matters more than the settlement.
- Processors will not automatically pass any savings to you unless you’re on IC+.
- Issuers are likely to reduce the number of cards that qualify for the cap over time.
In other words: Don’t assume your processing bill is about to drop significantly.
What SMBs should do now
✔️ Check your pricing model.
If you’re not on Interchange+, talk to your processor—or consider switching.
✔️ Review your statement data.
Look at your mix of card types. If standard cards are less than ~5% of your volume, the cap won’t materially move the needle.
✔️ Monitor future changes from issuers and processors.
They will react to the settlement in real time, and those changes affect your costs more than the cap itself.
✔️ Consider a payment cost review.
Many merchants unknowingly overpay due to outdated pricing, junk fees, or improperly routed transactions.
Final thought
The proposed settlement introduces important changes—but for most SMBs, the 1.25% interchange cap is more of a headline than a game-changer. Understanding how interchange truly works (and how processors price their services) is still the key to managing your payment costs.
If you’d like help analyzing your merchant statements or understanding your card mix, feel free to connect or reach out to us at info@payments-roundup.com