Analyst shares insights about how credit card ecosystem makes money, be it banks, Visa, Amex or Mastercard

Suraj Kumar Talreja working as a manger of business intelligence at Conga, an AI, CPQ, CLM, & document automation company in Pune and a former employee of Standard Chartered Bank, shared his thoughts on how banks, VISA, Mastercard, American Express (AMEX), and others generate revenue from your purchases. He also provided insights into why AMEX tends to offer more reward points compared to other credit cards.

Speaking exclusively to ET Wealth Online, Talreja said: “Every time you swipe your credit card, you’re not just paying for a purchase, you’re fueling an entire ecosystem where banks, networks, and processors all take a slice.”

Talreja said on X (formerly Twitter) on August 14, 2025: Every time you swipe your credit card…Your bank, Visa/Mastercard/Amex/Rupay, and others make money.But do you know exactly who earns how much from YOUR spend?Let’s break it down..”

How do banks earn from your credit card purchases?

Talreja said on X: Imagine you buy something worth Rs 1,000 using your credit card. The shopkeeper doesn’t get the full Rs 1,000. A small chunk called MDR (Merchant Discount Rate) is deducted, usually 1.5% to 3.5% for credit cards.

MDR is split between multiple players:

• Your Issuing Bank (HDFC, SBI, ICICI, etc.)
• The Payment Network (Visa, Mastercard, Amex, RuPay etc.)
• The Merchant’s Bank (Acquiring Bank)
• The POS/Gateway provider (Razorpay, Pine Labs, etc.)

Here’s a Rs 1,000 example (MDR = 2% = Rs 20 fee):

• Issuing Bank: Rs 14–Rs 16
• Visa/Mastercard/RuPay: Rs 2–Rs 3
• Merchant’s Bank: Rs 1–Rs 2
• POS/Gateway: Rs 0.5–Rs 1

The bank that gave you the card earns the most money.

Also read: Rs 2 lakh worth earning from credit card reward points, here’s how a techie working in Pune did it using these HDFC Bank credit cards

According to Talreja, the bank’s share of MDR is called the Interchange Fee.

• It’s the bank’s reward for:
• Giving you credit
• Handling billing & fraud risk
• Providing rewards & offers

For premium cards, interchange is usually higher. But wait, banks don’t just earn from interchange.
They also make money from:

• Annual fees
• Interest (18–42% p.a. if you don’t pay in full)
• Late payment charges
• FX markup (2–3.5% on international spends)
• Cash withdrawal fees

So, when you swipe Rs 10,000, your bank could be earning Rs 140–Rs 180 just from interchange, even if you pay in full. If you revolve your credit card balance, they (banks) earn a LOT more.

Also read: Ex banker explains who pays for your airport lounge access with free food, drinks, spa, bed, games, entertainment and others

How does AMEX give higher reward points?

American Express is different.

• It’s both Issuer + Network.
• That means Amex keeps a much bigger chunk (sometimes 90%+ of MDR).
• Which is why Amex rewards are often very lucrative.

The takeaway

Talreja says:

• Banks love high-spending, full-paying customers (interchange).
• They love revolving customers even more (interest).
• Every swipe funds an entire chain of players.
• You’re not just shopping, you’re feeding a whole ecosystem.

Talreja says: “Next time you tap your card, remember: It’s not “free” for the merchant. It’s a money machine for banks & networks.”