Stripe's potential acquisition of PayPal is driven by a desire to gain PayPal's strong consumer brand and access to customer bank accounts. This would let Stripe bypass expensive credit card interchange fees, a significant cost advantage that is more valuable than PayPal's technology.

Unlike D2C brands paying for ads, Affirm is paid a fee by merchants to acquire customers. This negative CAC is possible because merchants want a third party to handle the complexities of the financial relationship (billing, collections), making Affirm a partner, not a vendor.

Counterintuitively, Visa grows by introducing premium cards with higher merchant fees. These higher fees fund larger rewards, making the cards more attractive for issuing banks to promote and for affluent consumers to use. This strategy allows Visa to effectively capture market share through higher prices.

A credit card is not a single product but a complex bundle of services like loans, payments, and insurance. Its profitability relies on cross-subsidization, where revenue from one area (e.g., high interchange from a frequent traveler) covers losses or lower margins in another (e.g., providing rewards).

Amex's "closed-loop" model intentionally targets affluent consumers, using high merchant fees to fund premium rewards. This creates a virtuous cycle, positioning Amex as a status symbol for high spenders. This contrasts sharply with Visa's "open-loop" system, which scales as a low-cost, high-volume utility for the global mass market.

The fight for desirable credit users is so fierce that for customers in the middle-to-upper range of credit scores, the cost of rewards and cash back exceeds the revenue generated. Profitability only returns for the highest-spending users whose interchange fees outrun the reward expenses.

A surprisingly large portion of high credit card APRs covers operating expenses, particularly marketing. Issuers like Amex and Capital One spend billions annually on customer acquisition. This spending is passed directly to consumers, as higher marketing budgets correlate with higher chargeable rates.

High interchange fees on premium credit cards fund rewards for affluent users. Merchants bake these fees into universal pricing, meaning customers paying with cash or debit cards—who receive no rewards—effectively subsidize the perks of wealthier individuals. This creates a wealth transfer from the poor to the rich.

When governments, like Australia's, cap interchange fees, merchants rarely pass the savings to consumers by lowering prices. Instead, they pocket the difference while the funding mechanism for consumer rewards disappears. This results in a direct wealth transfer from consumers to large retailers.