How card rewards work: who really pays for cashback and points
By SendPay Business · · 2 min read
Card rewards such as cashback or points look free to the cardholder, but someone pays for them. Most of the money comes from the fees shops pay each time a card is used, plus whatever the card provider chooses to fund from its own margin.
Where the money comes from
- A customer pays a shop with a card.
- The shop's payment provider pays an interchange fee to the card issuer.
- The issuer uses part of that fee, and sometimes its other income, to fund rewards.
Why UK and EU rewards are smaller
In the UK and the EU, interchange on most consumer cards is capped at 0.2% for debit and 0.3% for credit. That leaves little room to fund rewards, which is why big cashback offers are more common in countries such as the US, where fees on many cards are higher.
Other ways rewards are funded
Some providers fund rewards through partner deals, where a shop pays for extra cashback to win customers, or through subscription plans that customers pay for. Some treat rewards as a marketing cost to win new customers.
Where SendPay fits
SendPay platforms include branded Visa cards under your own name, powered by licensed partners, and you set your own platform fees. SendPay tells you in writing which licences apply to your platform before you pay.
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Can interchange pay for my cashback?
Our free card rewards cost calculator compares the cashback bill with the interchange the spending generates.
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This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.