Political Structure Sustains Interchange
Nikil Konduru, GTM Strategy at Lithic, on the future of card issuing
The real moat in U.S. card issuing is political structure, not payments technology. A small group of large issuers can defend rich interchange economics because they are concentrated, coordinated, and economically aligned with Visa and Mastercard, while the cost is spread across millions of merchants who each feel pain individually but rarely have enough leverage to force systemwide change. That is why U.S. card economics have stayed far above Europe and kept funding fintech growth.
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In practice, interchange lets fintechs give consumers a card product that feels free, then recover the cost from merchants in the background. That model powered companies like Chime and Marqeta’s customers, which is why issuers, sponsor banks, and processors all have a stake in preserving the current fee pool.
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Merchant power is uneven. Giants like Walmart or Amazon can negotiate bespoke terms because their volume matters to the networks, but the long tail of smaller merchants cannot. That creates a split market where the biggest buyers can win concessions without changing the economics for everyone else.
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For infrastructure companies like Lithic, this matters because card issuing demand is downstream of interchange margins. When U.S. consumer debit can still generate around 140bps for Durbin exempt programs, and U.S. commercial volume can clear north of 2.50%, developers keep finding reasons to embed cards into software workflows.
The next phase is less about whether interchange disappears, and more about who captures more of it. Modern issuer processors are moving up the stack into credit, program management, and premium data products, while large merchants and enterprise platforms keep pushing for custom economics. The market keeps expanding as long as the U.S. fee pool remains unusually attractive.