Contrary to the common perception of users paying off balances monthly ("transactors"), the majority—about 60%—are "revolvers" who carry debt. This group is the primary source of profit for card issuers, as they are subject to interest rates now averaging a staggering 23%.

Competition for high-spending business travelers led banks to offer airline loyalty points as rewards. This cross-subsidization, funded by interchange fees, became so profitable that the loyalty programs are now worth more than the airline carriers they partner with.

Interchange is not just a transaction processing cost. It's pitched to merchants as a fee for bringing them desirable, high-spending customers who use a particular card brand, analogous to paying for an advertisement that drives business. The card issuer receives the largest share for taking on the risk and acquiring the customer.

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.

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.

The competition for travel cardholders is not for the average person but specifically for the affluent consumer. This demographic spends twice as much, is willing to pay higher fees, presents lower credit risk, and is more loyal, driving a disproportionate share of the economics for both banks and travel partners.

The system of charging retailers an interchange fee (around 1.8%) that is then passed to consumers as rewards (around 1.57%) creates a strong network effect. Consumers are incentivized to use rewards cards, and retailers cannot easily offer discounts for other payment methods, locking both parties into the ecosystem.