Cashback, air miles, merchant discounts, other perks, these are the incentives that banks and credit card companies (Financial Institutions – FIs) use to attract you to apply and spend on their cards.
Every transaction you spend using these cards, merchants are charged a fee by the FIs for providing the card facility. The fees (known as interchange fee) are what the FIs earn and use to pay for your rewards.
For example, if you swipe your credit card when you buy a new laptop for $1,500 from Courts, FIs would charge Courts 2% of that money (or $30). That $30 would be used to pay for the FIs operation costs and a portion of it will be channelled back to you as rewards (either cash back or some other form). FIs also use the money from the cards’ annual fees and interest for late payment to fund the rewards program.
In order to