The Invisible Tax Created by Interchange Fees

From a consumer’s perspective, a card payment is simple magic—just a beep and you’re done. But from a merchant’s perspective, there’s a small tax bill attached to that beep. At the heart of this tax is the ‘interchange fee.’ It’s like a wholesale price that flows from the merchant’s bank (the acquirer) to the cardholder’s bank (the issuer), according to rules set by the card network. A UK government document explaining how EU regulations were implemented domestically quite bluntly describes interchange fees as “fees set by the card network, paid by the merchant’s bank to the cardholder’s bank, and ultimately borne by the merchant.”

The reason this structure is so powerful is that payments operate as a classic ’two-sided market.’ When consumers use cards more, merchants must accept cards, and when merchants accept them more, consumers use them more. The lever that balances this equation is fees and rewards. Banks and networks argue that “if you cut fees, rewards (points, cashback) will decrease too,” while merchants counter that “rewards are passed on to prices anyway.”

The numbers make this clearer. In the United States, credit card interchange fees commonly range around 2-3% of the transaction amount, according to research from the Federal Reserve Bank of Philadelphia. The same research notes that this cost makes up the majority of the ‘merchant discount’ (merchant fee) that merchants pay.

Europe, on the other hand, took the “this tax is too heavy” approach early on. The European Union’s card payment fee regulation capped interchange at 0.2% for consumer debit cards and 0.3% for consumer credit cards. This regulation essentially chose to lower costs themselves rather than spreading payment costs across society through rewards and benefits.

But the ’tax’ doesn’t end with just the fee percentage. A payment isn’t truly “finished” with authorization—it requires settlement. Credit cards typically go through authorization, batch processing, and clearing before settlement, which generally takes 1-3 business days, as payment infrastructure companies explain. Consumers take their purchases immediately, but the merchant’s money doesn’t land until days later. This is why merchants pay attention to the ‘cash conversion speed’ of their sales, and this loose time gap (float) becomes an important part of payment economics.

One more thing. Card payments aren’t just simple transfers—they’re a ‘dispute and protection’ package. Card payments come with mechanisms like transaction cancellation, disputes, and chargebacks, and chargebacks are essentially a consumer protection mechanism that says “if there’s a dispute, funds can be returned.” In contrast, ‘push payments’ like bank transfers, where users directly send money, may have more limited dispute rights—a point repeatedly made in the payments industry.

In the end, card fees aren’t just “the cost of passing money along”—they’re a price tag for bundling multiple functions like instant authorization, credit provision (for credit cards), fraud prevention, and dispute handling.

This is how the payments industry operates—with fees, settlement times, and protection mechanisms tightly intertwined. So when we say ‘interchange fees are ending,’ it doesn’t just mean a few percentage points are being shaved off. It’s closer to saying the central axis of payments (where money is finally settled) is shifting.

What Stablecoins Shake Isn’t the ‘Payment Experience’ but the ‘Settlement Backbone’

On the surface, stablecoins look like crypto assets, but from a payment perspective, they’re closer to “cash packaged in token form that can be moved on a blockchain.” McKinsey & Company describes stablecoins as “digital assets designed to be pegged to traditional currencies (e.g., dollars),” typically backed by highly liquid reserve assets like cash or short-term government bonds.

And the point where this tokenized cash disrupts payment economics is ‘settlement that’s always open.’ Blockchains fundamentally operate 24/7. Even on holidays, weekends, and across borders, they have the property of being ‘recorded and finalized on the ledger.’ So stablecoins have the potential to change not the payment UX itself (whether you swipe a card or scan a QR code) but “the path where money gets finalized behind the scenes.”

There are attempts to demonstrate this point with data. Visa operates a dashboard tracking stablecoin on-chain activity together with Allium Labs. The key metric they’ve published is the distinction between ’total transaction volume (including noise)’ and ‘adjusted transaction volume (noise removed).’ On the same page, they show stablecoin circulation exceeding $272 billion, with recent 12-month ‘adjusted’ global transaction volume around $10.2 trillion.

The important point here is that “circulation (market size)” and “transaction volume (throughput)” are completely different numbers. If the ’total number of cars’ on the road is circulation, then ‘daily traffic volume’ is transaction volume. The payments industry is fundamentally a throughput industry. The same dollar can move multiple times in a single day.

From an independent institution’s perspective, “stablecoin payments are still small, but transaction volume is already massive” can both be true simultaneously. The European Systemic Risk Board cites that stablecoins accounted for only 0.2% of global e-commerce transaction value in 2024, while noting that Coinbase reported $10.8 trillion in stablecoin settlements in 2023, of which $2.3 trillion was ‘payment-related.’ However, it also includes analysis that “a significant portion is trading and internal movements, not actual physical purchases.”

In other words, stablecoins aren’t yet the protagonist of the “payment button,” but they’re already growing their presence as “the plumbing where money moves.”

When this plumbing changes, what’s different? The fundamental weakness of card payment networks is that ‘authorization is instant but settlement is slow and tied to business hours.’ In contrast, stablecoin settlement has no distinction between weekends and holidays as long as the network is open. This difference is particularly critical in areas where settlement speed and availability equal cost—like business-to-business (B2B) payments, international remittances (retail and corporate), and platform settlements (marketplace and creator payouts).

And at this point, existing players oscillate between the fear that “stablecoins will destroy us” and the reality that “we’ll survive by integrating stablecoins.”

Why ‘Trillions of Dollars’ Is Both Dangerous and Attractive

The moment numbers get attached to stablecoin discussions, most debates get tangled here. When someone says “the market is trillions of dollars,” people naturally think of ‘circulation balance (market cap).’ But trillions of dollars is a very aggressive forecast by that standard.

Let’s look at current circulation first. DeFiLlama’s stablecoin aggregation, widely cited for DeFi and on-chain data, shows total market cap (total circulation) around $300 billion as of early 2026. This market is extremely concentrated. Multiple reports repeatedly mention that dollar-based stablecoins (especially USDT and USDC) make up the majority, with two specific issuers holding large shares.

So the question “will this become trillions of dollars” depends on what you call the ‘market.’

First, circulation balance (market size) basis. Citigroup’s report projects stablecoin ‘issuance’ in 2030 at approximately $1.9 trillion in the base scenario and approximately $4.0 trillion in the optimistic scenario. In the same context, J.P. Morgan takes a more conservative view of stablecoin growth, with Reuters reporting a mention of $500 billion by 2028. European Central Bank research also cites various institutional projections, showing that the debate itself about “whether it can grow to trillions” hasn’t reached a conclusion yet.

Looking at this lineup, “trillions in circulation” is a number that breaks through the upper end of mainstream research frameworks.

Second, annual transaction volume (throughput) basis. By this standard, the story changes dramatically. Citi uses the concept of ‘velocity,’ calculating that even with balances at a few trillion dollars, annual transaction volume can spike much higher. According to example calculations in the report, under certain payment velocity assumptions, stablecoins could support tens to hundreds of trillions of dollars in annual transaction activity.

And “trillions of dollars” is actually already close to reality from this throughput perspective. Visa’s public metrics show recent 12-month ‘adjusted transaction volume’ reaching $10.2 trillion. The ESRB report also presents external estimates that “stablecoin settlements exceed trillions,” while warning to break down the nature (physical payments vs. trading/internal movements).

The conclusion is this. Unless you first clarify whether you’re talking about circulation balance or transaction volume, ’trillions of dollars’ is a number that’s easy to both persuade and deceive people with. But conversely, considering that the payments industry is a throughput industry, this number also has significant appeal. It means “even with relatively small circulation, throughput can grow large enough to threaten existing rails.”

And as this throughput grows, the legitimacy of the ‘interchange fees’ that existing payment networks have monopolized gets shaken more violently. Especially in areas with intense fee debates like cross-border payments and online payments, this shaking comes first.

The Reality Version of the Payment Revolution Scenario

Now let’s replace the provocative statement “bank and card fees are ending” with the actual chain of changes happening. Both why the revolution scenario is ‘possible’ and why ‘it won’t happen exactly that way’ become visible.

The first thing to change isn’t consumer payments but ‘institutional settlement.’ The scene of consumers swiping cards at stores remains the same, but how money moves behind the scenes changes. Visa announced a program allowing US banks to settle card-related obligations in USDC, mentioning Cross River Bank and Lead Bank as initial participating institutions. The core message of this program is “consumer experience stays the same, settlement is possible 24/7 including weekends.”

Reuters also reports that Visa views stablecoin settlement as ‘defensive innovation,’ and while this area is still small compared to overall payment volume, it’s growing.

This trend matters because the card payment industry is essentially a ‘settlement, risk, and data’ industry. If settlement becomes faster and more frequent (including weekends), the operating costs (capital waiting, liquidity management) of payment networks, banks, and merchants can decrease. At the same time, pressure emerges that “if settlement is faster, fees should come down too.” Because slow settlement and complex intermediation were themselves excuses for the price.

The second wave is international remittances and platform settlements. Consumer card payments have complex protection mechanisms attached, making them hard to change all at once. Instead, areas where “send fast, receive fast” is urgent shake first. PayPal enabled the use of stablecoins (PYUSD) as a funding source for international remittances in its subsidiary service Xoom, announcing fee waivers under certain conditions. Such models are likely to appear to consumers as “I just sent it through the app, but a stablecoin was rolling behind the scenes.” The ESRB also mentions such cases as “signs of growing stablecoin presence in payments” while assessing that the overall payment share is still limited.

The third is regulatory ’normalization.’ For stablecoins to become payment rails, regulations must ultimately classify and treat them as ‘money-like things.’ Europe created a framework including stablecoins (e-money tokens, etc.) through MiCA, with stablecoin-related provisions beginning to apply from June 2024. The US also enacted the GENIUS Act in July 2025, elevating to a legal framework obligations for stablecoin issuers including 1:1 reserve assets, monthly disclosures, and anti-money laundering requirements.

In other words, the transition from “gray-area toys” to “regulated payment infrastructure components” is already underway.

But this is precisely where the revolution scenario starts to unravel. For stablecoins to eliminate card fees in payments, they must replace the value that card payments provided (especially credit, dispute protection, and fraud prevention). But stablecoin payments fundamentally have a strong ‘push payment’ character, making it difficult to layer on chargeback-based consumer protection like cards do. Spreading the choice of “cheaper fees but weaker protection” in mass payments immediately is harder than it seems. So the realistic path often looks like this: “Give consumers the same card-like wrapper (familiar payment experience) and only change the settlement and fund movement behind it to stablecoins.” Visa’s approach is exactly that model.

Another major variable is ’trust.’ Central banks and international organizations have pointed out weaknesses in the conditions stablecoins must meet as ‘money.’ The Bank for International Settlements assesses that stablecoins are vulnerable in criteria like singleness, elasticity, and integrity, viewing them as unlikely to become the central axis of the monetary system.

In particular, the structure where large stablecoins hold massive short-term government bonds as reserve assets carries warnings about the potential “redemption → reserve asset sale” path to shock safe asset markets during market stress.

At this point, “who provides that trust” determines the outcome. The composition of reserve assets and the level of disclosure and auditing are at the core of trust. Tether has long provided disclosure centered on ‘attestation’ rather than ‘audit,’ with reports of pursuing major accounting firm audits. At the same time, reports emerged of credit rating agencies pointing out increased risk in reserve asset composition and transparency issues. In contrast, Circle provides monthly reserve asset disclosures, explaining in public documents that reserve assets consist of short-term US Treasuries, repo agreements, cash, and similar.

This difference isn’t just an image battle—it directly connects to the ‘regulatory passage power’ to become payment rails.

Finally, there’s the counterattack (or absorption) by existing giant players. The news that SWIFT, the symbol of international payment messaging, announced development of a blockchain-based platform paradoxically shows that stablecoins aren’t just developer toys outside the existing system. It’s not “stablecoins are a threat so we’re doing blockchain too,” but rather a judgment that “in an era where settlement and assets are tokenized, messaging alone isn’t enough.”

So the conclusion is closer to ‘redistributed’ than ‘collapsed.’

The interchange fees that the card industry has earned have been maintained by bundling and selling the three functions of payments (settlement, protection, credit). Stablecoins first separate out ‘settlement’ and turn it into a cheaper, faster component. Then the remaining functions (protection, credit) either get separate price tags, or new intermediaries (wallets, platforms, issuers, regulated payment operators) take that share. And in this process, the phrase “the era of interchange fees is ending” is likely to become reality more precisely as “the owner of interchange fees is changing.”

References

• Federal Reserve Bank of Philadelphia, “Interchange Fees in Payment Networks” (Working Paper)
• European Union Card-based Payment Fees Regulation (interchange caps 0.2%/0.3%) summary and adoption materials
• Federal Reserve, Regulation II (debit card interchange cap) and debit card interchange statistics
• Visa, Stablecoin data, adjusted transaction volume, and regulatory environment explanation (including on-chain dashboard)
• European Systemic Risk Board, “Crypto-assets and decentralised finance” (Report)
• Citigroup, “Stablecoins 2030: Web3 to Wall Street” (Report)
• Bank for International Settlements, Annual Report (assessment of stablecoins against ‘money’ criteria) and related issues
• SWIFT’s blockchain-based platform initiative related reports
• PayPal and Xoom, stablecoin-based international remittance (funding source, settlement) announcements
• Central Bank of Ireland and French financial regulatory authorities materials: MiCA application timing (stablecoin regulations priority application)
• United States Congress and The White House: GENIUS Act core requirements (reserve assets, disclosure, BSA, etc.)
• DeFiLlama stablecoin total circulation and market cap aggregation
• Card payment settlement, chargeback, and consumer protection explanations (payment infrastructure perspective)