Payment Network Dynamics and Rewards Costs

Payment networks have evolved over time, with modern systems now processing high volumes of transactions at a lower percentage cost. The revenue model of payment networks includes interchange and interest revenue, with credit cards generating around 8 to 10% of total revenue per dollar spent. High-end reward cards, which may charge annual fees, offer users significant rewards, leading to customer retention and potential cross-selling of other financial products. Even for customers who do not accrue interest, banks view credit cards as a means of engaging customers and offering them other products, leveraging the high engagement level associated with credit cards.