Bank Size Correlates to Swipe Fee Inflation and Drives Upward Wealth Redistribution
By Carter Dougherty | May 14, 2026
Among the innovations on offer from the biggest banks in the United States is the premium credit card, with the financial pizzazz that attracts both wealthy consumers and people aspiring to that status. Those cards might seem irresistibly elite and modern, with a weighty metallic feel or textured black covering.
But the data on fees associated with those status symbols paint an increasingly bleak picture. In short, the rise of premium cards, with all their bells and whistles, is amplifying costs for merchants forced to accept them and exacerbating the redistributive effects of the payment system for less-affluent consumers, a group that skews Black and brown. And the largest banks—an oligopoly within an oligopoly—are the ones primarily responsible.
The news for small businesses and consumers is, at a broad level, bad enough when it comes to swipe fees. Merchants pay them mostly to the dominant networks, Visa and Mastercard, when a consumer uses a card. In fact, merchants paid a record $198.25 billion in swipe fees (debit and credit) in 2025, the highest level ever, and a number approaching double the $110 billion they paid as recently as 2020. In the competitive, low-margin retail business, that cost is passed on to the consumer.
The networks—duopolists that look a bit like third-party, anti-competitive price-fixers along the lines of RealPage orAgri Stats—share that money directly with card-issuing banks, mostly the five giants. The oligopoly of JPMorgan Chase, Citigroup, Bank of America, Capital One, and American Express account for about 70 percent of all credit transactions.
The Interchange System
This “interchange” system, as it is known, evolved out of a formerly merchant-centric system to become a supremely profitable business for banks and especially the card networks, both of which have profit margins around 50 percent. Debit interchange is lightly regulated under a bank-friendly rule the Fed wrote in 2011. Credit swipe fees are unregulated in the United States. And the nature of established networks makes kickstarting a viable competitor all but impossible.
Within the circle of credit-card oligopolists lie the very few banks that rule the roost for premium cards, ones that often charge a high annual fee (paid by the cardholder) and offer abundant perks. Access to airport lounges, hotel rooms, rental cars, or gyms, are some typical examples. Some also offer customer service that feels a bit more exclusive than what is on offer to the proles with garden-variety credit cards.
The premium issuers have brands and marketing muscle behind them. American Express of course, has long been synonymous with wealth and privilege. JPMorgan Chase has its stable of fancy cards around the Sapphire brand. Citigroup trying to build up its Strata card. Capital One has the Venture X card but focuses mostly on travel rewards. Bank of America’s offerings are overwhelmingly outside the premium segment. These cards then carry either the Visa or Mastercard logo, indicating which network processes the payments.
Big Banks Charging Big Fees
New research from Harvard Business School reveals that nonpremium credit cost merchants an average interchange fee of about 1.7 percent, whereas premium credit cards command average fees of approximately 2.1 percent—40 basis points across hundreds of billions of dollars in transactions.
Other evidence highlights the relationship between bank size and the fees they harvest from merchants. A new estimate by the consultancy CMSPI reveals that large credit card issuers—the roughly 25 banks with assets above $100 billion—harvest on average 18 cents more per credit card transaction than do card-issuing institutions sized at less than $10 billion, the threshold for what is considered a community bank.
This data is consistent with how banks operate. They typically conceptualize credit card programs as self-contained profit centers, rather than a loss-leader that creates other business relationships with a consumer. So, the higher swipe fees and membership dues from consumers fund the bells and whistles that make a card a premium offer. (In theory swipe fees fund rewards, but as a practical matter, money is fungible, and banks can use cash from any source to bankroll marketing efforts, which is what rewards are at their core.) In any case, credit cards are insanely profitable for banks, as the Vanderbilt Policy Accelerator has demonstrated.
But this system has massive downsides for everyone but bankers. Merchants are on the receiving end of an inexorable logic of monopoly power that, in distilled form, forces them—and by extension, all their customers—to subsidize the marketing and use of premium cards by banks and their best clients.
Opting out is no option at all when cards are, by a great margin, the dominant means of payment in the United States. Rejecting individual cards won’t work either: Visa and Mastercard have long imposed “honor-all-cards” clauses in their merchant contracts. Per Harvard, the increasingly prevalence of these premium cards grew from just 15 percent of total credit card volume in 2006 to 60 percent by 2022, which had the effect increasing total credit card interchange fees by roughly 10 percent in that same period.
Wealth Redistribution Via Swipe Fees
What’s more, swipe fees are, by their nature, a regressive private tax imposed on sales of anything whose purchase runs through the Visa/Mastercard duopoly—which is a lot!—and a striking example of how the financial system channels wealth upwards.
A salaried professional who throws down a premium card from a big bank and a laborer who pays cash both pay the same price for a good or service, but the wealthier one gets the card perks. The working stiff gets nothing additional. Retail profit margins fall in the single digits (4.6 percent for retailers in general; 1.7 percent for grocery stores) and swipe fees are generally the second- or third-highest cost, after labor and real estate. Under that pressure, these merchants have little choice but to pass on higher costs.
The Hispanic Leadership Fund concluded that households with income less than $75,000 per year collectively transfer over $3.5 billion to those making more than $75,000 per year through credit cards alone. A Federal Reserve study put the regressive wealth redistribution much higher, at $15 billion. That money flows, in the Fed’s words, “from less to more educated, poorer to richer, and high to low minority areas, widening existing disparities.
With the Harvard study, we now have a more comprehensive answer to the question of how regressive the interchange system truly is, and it comes against the backdrop of today’s K-shaped economy. Swipe fees, driven by the rise in premium cards, now effect a $30 billion annual transfer from cash and regulated debit card users to credit card users, per Harvard. That transfer includes a $9.2 billion annual transfer from low- and middle-income households (earning less than $150,000) to higher-income households. Have a nice day.
Reforming Megabank Abuses
The abuses of the megabanks don’t begin or end with high swipe fees on premium cards. Research has shown that they tend to charge higher interest rates on credit cards without passing on savings to consumers when borrowing costs fall. The bigger the bank, the less interest they tend to pay on savings. Lest we forget, the biggest banks have for much of American history, caused financial crises that led to depressions and bailouts. Why, exactly, do we need them?
We don’t, but that’s another topic. We can start by sizing-down their abuses, by gang-tackling a payment system that is a hot monopolized mess. Legislation pending in Congress, the Credit Card Competition Act, would force Visa and Mastercard to compete for merchant business by enabling other networks, and applies specifically to banks with assets above $100 billion. State legislation that limits swipe fees on taxes and tips is essential. Requiring all banks to use FedNow, the so-far-disappointing government-created real-time payment system, would create a viable backbone for further innovation.
The case against our current payment system is overwhelming. The only move remaining is substantive, structural reform.
###
Carter Dougherty is the Senior Fellow for Antimonopoly and Finance at Demand Progress, a think tank and advocacy group. He writes the occasional post at The Money Trust. This blog was also published on In Debt, a Protect Borrowers Substack.