Okay, why does this all work basically the same in Europe, but interchange fees are capped at 0.3% by law? The reason has nothing to do with fraud or technology.

1. Even in regulated markets like Europe, you’ll note that it’s still a percentage of the transaction value, not a fixed cost.

2. In EU, while Interchange is regulated, Scheme fees, Acquirer fees, and Processor fees are not. These are usually also expressed as percentage of the transaction value.

3. Because of the more limited avenues to offset risk, access to credit in EU is more difficult than in more dynamic markets like the US (not saying it’s good or bad, just highlighting that there are downstream impacts).

I wonder if US issuers/merchants/customers are subsidizing their European counterparts. Maybe the "right" number is for everyone to pay 1.2% or something like that.

Of course, without price controls, most businesses will charge whatever they can get away with that doesn't cause them to lose too many customers, so...