Why Debit Card Merchant Fees Are Increasing in 2026

Debit card transactions are cheaper for businesses to process because they have lower interchange rates. 

Regulated debit cards can cost as low as 0.05% + $0.22 per transaction at the interchange level (whereas a credit counterpart costs anywhere from 1.45% to 2.60%).

But Capital One’s merger with Discover is changing the game, as millions of debit cards will no longer be subject to federal interchange caps. And for businesses that accept a high volume of debit cards, this is a big deal. You might see a 2,100% increase on a portion of your debit card volume. 

Read on to understand why.

Key Takeaways

• Capital One’s acquisition of Discover gives them access to Discover’s closed-loop debit network.
• Debit cards issued by Capital One that were previously subject to federal caps under the Durbin Amendment can now be bypassed.
• Federally regulated debit transactions are capped at 0.05% + $0.22 per transaction.
• Debit cards routed through Discover’s network can be as high as 1.10% + $0.16 for card-present transactions and 1.75% + $0.20 on card-not-present sales. 
• Capital One is migrating from Mastercard’s debit network to Discover’s debit network, which will be completed in 2026.

Capital One already issues its own debit cards, and based on the size of this bank, it means they’re subject to Durbin caps. But acquiring Discover gives them the structure to shift their debit volume through a path that circumvents what the Durbin Amendment currently regulates. 

As a result, merchants will pay significantly higher fees to process debit cards issued by Capital One.

How the Durbin Amendment Regulates Debit Card Transactions

The Durbin Amendment to the Dodd-Frank Act was designed to limit how much banks can charge merchants to process debit card transactions.

According to this federal law from 2011, US banks with more than $10 billion in assets are subject to stricter caps on debit card interchange fees. For “regulated” issuers, the fee is capped at:

• 0.05% of the transaction amount
• Plus $0.21 fixed per transaction
• Plus up to $0.01 for fraud prevention (on qualifying transactions)

This essentially means that regulated debit card transactions typically cost merchants around $0.22 to $0.25 per swipe, regardless of the sale amount. That’s why debit cards have been historically cheaper to accept than credit cards, especially for larger purchases.

Why Discover’s Debit Network is Different

Most debit transactions in the US are run through open, four-party networks like Visa and Mastercard. In this model, the issuing bank, acquiring bank, card network, and merchant are all separate parties. 

The interchange fee is clearly defined (and regulated if it’s from a large bank). And it’s paid by the merchant’s acquirer to the issuing bank. 

Discover operates differently.

Discover uses a closed-loop network (with three parties instead of four). In this scenario, the network and issuer are integrated. So instead of charging a standalone interchange fee that flows to the issuing bank, Discover controls the pricing at the network level.

This structural difference is significant because:

• The Dubin Amendment was only written to cap interchange fees using the four-party model. 
• But it doesn’t regulate closed-loop networks, even if the cards are issued by a bank with over $10 billion in assets. 

Capital One has over $650 billion in assets, which means their debit cards are still regulated under the Durbin Amendment. But this only applies to debit transactions being routed through four-party networks. 

By acquiring Discover, Capital One effectively found a loophole to bypass capped interchange fees.

Capital One Still Issues Cards, But Now They Also Own the Network

Capital One is still a card issuing bank for both credit and debit cards. That hasn’t changed. 

But now they own Discover. And Discover isn’t just a card brand, it’s also a payment network with its own routing infrastructure. 

That distinction matters.

Even though Capital One is still the issuing bank of its own debit cards, they have control over transactions that are routed and priced (because they own the network).

So instead of routing debit transactions through a regulated four-party network with capped interchange fees, Capital One can route its debit volume through Discover’s closed-loop network where federally capped rates won’t apply. 

Capital One is still regulated under the Durbin Amendment because of its asset size. But the transaction structure itself (three-party instead of four-party) changes everything. 

They Knew They Could Circumvent the Durbin Amendment Through Discover’s Debit Network

Discover’s network was a driving force behind Capital One’s acquisition in the first place. 

The American Economic Liberties Project published an excellent write-up on the regulatory and competitive nature of this acquisition, and they pulled some telling quotes from Capital One CEO Richard Fairbank.

Here’s what stood out to me the most:

• “[Durbin Amendment] explicitly excludes networks like Discover and American Express.”
• “We all kind of revel in the fact that a network is a very, very rare asset.” 
• “The significant majority of the network synergies are on the debit side.”

There it is.

The CEO of Capital One said that the Durbin Amendment doesn’t apply to network they’re purchasing. 

And according to the same source, the word “network” was mentioned 110 times during Capital One’s call that introduced its merger with Discover. In comparison, they only used the “issue/issuer” 11 times and “bank/banking” 39 times. 

What About the “Two Unaffiliated Networks” Rules?

Another part of the Dubin amendment requires merchants to have a choice between at least two unaffiliated debit networks for routing debit transactions. That hasn’t changed.

And while this sounds like a good way to help keep merchant fees low, it doesn’t fully protect them in this scenario. 

Here’s why:

• One of those required networks can be a PIN network, like STAR, PULSE (owned by Discover), or NYCE. Though this doesn’t apply to all transaction types.
• The routing choices can be limited based on how cards are configured, how terminals are set up, and the transaction type (PIN vs. signature, card-present, keyed, or on-file).
• If the issuer also owns the network, routing competition isn’t truly competitive in practice (even if it’s “technically” compliant with the law).

In short, Capital One is still in control here.

And while they may not necessarily be able to route 100% of every transaction through Discover’s network, there are plenty of different ways that they can encourage more transactions to be processed this way. 

This Will Ultimately Result in Higher Debit Card Fees For Merchants

If we put all of this together and read between the lines, it’s clear that merchants are going to pay the price when it comes to debit card acceptance. And Capital One is going to take full advantage of their $35 billion investment that they’ll need to get a return on. 

Debit cards issued by Capital One that were previously routed through Mastercard’s debit network were regulated transactions and subject to the 0.05% + $0.22 federal cap.

On a $100 debit transaction, that’s $0.27 in interchange fees paid by the merchant.

If that same exact $100 transaction is routed through Discover’s closed-loop debit network, the interchange fees jump to $1.26 for an in-person transaction (1.10% + $0.16), and $1.95 for a CNP sale (1.75% + $0.20).

That’s a massive increase.

Certain Businesses Will Be Affected More Than Others

Obviously, your business needs to process a significant volume of debit cards for this to really impact your bottom line. 

And not every debit card transaction is being increased. It’s only debit cards issued by Capital One that are going through Discover’s debit network. 

For many merchants, this won’t be a huge deal. But for others, it can significantly cut into your profit margins. Let’s look at some scenarios: 

Scenario #1: Subscription / Recurring Sales (CNP Debit)

Consider a SaaS or subscription business that processes $45 million in total card volume across 1.5 million transactions annually.

• Average ticket size: $30
• 40% debit volume: $18 million and 600,000 transactions
• 10% of debit volume is Capital One: $1.8 million and 60,000 transactions

Now let’s say 35% of those Capital One debit transactions shift to Discover’s network at CNP pricing of 1.75% + $0.20 per transaction.

• Old cost (if it stayed Durbin regulated): $4,935
• New cost routed through Discover: $15,225 
• $10,290 net increase per year

Scenario #2: In-Person Retail (Card-Present Debit)

Now let’s say you’re running a multi-location retail business (grocery, convenience, speciality) that processes $120 million in total card volume on 6 million transactions per year.

• Average ticket size: $20
• 55% debit volume: $66 million and 3.3 million transactions
• 8% of debit volume is Capital One: $5.28 million and 264,000 transactions

We’ll say 40% of Capital One-issued debit cards are now being routed through Discover’s network at 1.10% + $0.16 per transaction.

• Old cost: $34,056
• New cost: $59,571
• $25,514 annual net increase

When Will the Debit Interchange Rates Go Up?

There’s no single date where this is going to happen. And it likely won’t happen all at once, either, which will make it harder for you to catch on your statements. Capital One started this migration from Mastercard to Discover last year, and plans to finish in 2026.

So at some point this year, you’re going to notice a debit rate increase on your Capital One debit volume. 

You should be auditing your statements every month, anyway. But if you process a high volume of debit cards, pay close attention to those specific interchange rates.

1. Take your total debit interchange fees each month.
2. Divide that by total monthly debit volume.
3. Record that number, and compare it to previous months.

If your business only accepts a handful of debit cards, this likely won’t be necessary or worth the effort. But as you can see from the examples above, this can cost you tens of thousands of dollars if you process lots of debit transactions. 

What You Can Do About This to Keep Your Rates Low

You can’t control fees set at the interchange level. 

But this is a great opportunity to assess your current acceptance strategy and look for ways to optimize your debit routing. 

While Capital One has definitely stacked the deck against you, there are still ways that you can configure your terminal and acceptance method to route those transactions through the most cost-effective network. 

Additionally, you can look for other ways to lower your total cost of acceptance.

Here’s what I mean. Let’s say that due to Capital One’s new debit routing, it costs your business an extra $1,000 per month to process debit cards and there’s nothing you can do about it.

Well, you might be able to lower your credit card processing fees by $3,500 monthly, which is still a $2,500 net positive (and $30,000 saved annually).

Beyond interchange optimization, lots of this comes from negotiating directly with your processor. You’d be surprised how much their markup is cutting into your profits and how much room there is for savings. 

So if you haven’t had a professional audit done in a while, this situation with Capital One is the perfect excuse to do it now, before your debit card processing fees spike.