The Power of Issuing Your Own Cards: A Comprehensive Guide to Revenue

In the modern financial landscape, issuing payment cards is no longer the exclusive domain of traditional banks. The rise of embedded finance and Banking-as-a-Service (BaaS) has empowered a wide range of businesses - from fintechs to e-commerce platforms - to create their own branded card programs. This strategic move transforms a business from a simple service provider into a financial ecosystem, unlocking powerful new revenue streams.

To understand how a business can earn money from issuing its own cards, it's essential to grasp the core mechanics of the payment network, which involves four key players:

• The Cardholder: The individual using the card.

• The Merchant: The business where the purchase is made.

• The Acquiring Bank: The merchant's bank, which processes the transaction.

• The Issuing Bank: The card issuer, which provides the card to the customer.

Revenue flows to the issuer primarily through three channels: interchange fees, interest income, and various cardholder fees. The profitability of each channel depends heavily on the type of card being issued.

1. Interchange Fees: The Foundational Revenue Stream

Interchange fees are the "invisible tax" on transactions and the most fundamental way a card issuer earns money. Every time a cardholder makes a purchase, the merchant's bank pays a fee to the card issuer. This fee is a percentage of the transaction, often with a small fixed amount added on top.

The amount of interchange revenue is not uniform. It is a dynamic variable determined by:

• Card Type: Credit cards generally have the highest interchange rates, followed by debit and prepaid cards.

• Transaction Type: Online transactions (card-not-present) are riskier and, therefore, carry higher interchange fees than secure, in-person transactions.

• Merchant Category Code (MCC): Certain industries, such as travel or airlines, have higher interchange rates than others.

• Geography: In the EU, interchange rates are subject to regulations that cap them at 0.3% for consumer credit cards and 0.2% for consumer debit and prepaid cards. This makes the revenue model fundamentally different from countries with higher interchange rates.

A portion of the interchange revenue can be used to fund customer-facing benefits, such as cash-back or rewards programs, making the card more attractive to a wider audience.

2. Interest Income: The Profit Engine

Interest income is the most significant profit driver for card issuers, but it is exclusive to credit cards. When a cardholder carries a balance from one billing cycle to the next, the issuer charges interest on that amount.

The average Annual Percentage Rate (APR) on credit cards in the EU can exceed 20%. This high rate, compared to other forms of lending, makes interest a highly profitable revenue stream. For many credit card companies, interest income accounts for the vast majority (up to 80%) of their total profitability.

3. Cardholder Fees: A Diverse Revenue Source

Issuers also generate a significant amount of revenue directly from cardholders through a variety of fees. These fees are a crucial component of the business model for all card types.

• Annual Fees: Often associated with premium or rewards-focused cards, these fees are a predictable source of recurring revenue.

• Late Payment Fees: Charged when a cardholder misses a payment, these fees not only generate revenue but also incentivize on-time payments.

• Cash Advance and Balance Transfer Fees: These fees are levied for specific types of transactions and are often highly profitable for the issuer.

• Overdraft and ATM Fees: Common for debit cards, these fees are a key way for issuers to monetize their products when interest is not a factor.

• Activation and Reloading Fees: Primarily used for prepaid cards, these fees provide a low-risk, steady revenue stream.

How to Earn by Card Type: Real-World Examples Credit Card: The "Zenith Rewards Card" Model

A business issues a premium credit card program, the "Zenith Rewards Card," targeting frequent travelers and high-spenders.

• Earning from Transactions: A customer uses the card for a €1,000 airline ticket. Given the EU's regulated interchange cap of 0.3%, the issuer earns €3.00 from this single transaction.

• Earning from Interest: A different cardholder with a €5,000 balance makes only the minimum payment. With an average APR of 20%, the issuer earns approximately €83.33 in interest that month. This is a recurring profit stream as long as the balance is not paid off.

• Earning from Fees: The "Zenith Rewards Card" has a €90 annual fee. With 10,000 active cardholders, the issuer generates €900,000 per year in predictable revenue from this fee alone.

The high profitability of credit card issuing is a trade-off, as it comes with the operational complexities of managing credit risk and fraud losses, which can be substantial.

Debit Card: The "Zenith Checking Card" Model

A business issues a debit card linked to a customer's digital bank account, primarily targeting a large customer base with high transaction volume.

• Earning from Interchange: A customer uses their debit card for a €20 grocery purchase. Due to the EU's interchange cap of 0.2%, the issuer earns just €0.04 per transaction. While this seems small, the key is volume. With a large customer base making thousands of transactions per day, this revenue adds up quickly.

• Earning from Overdrafts: A customer with a €10 account balance attempts a €40 purchase, overdrawing their account. The issuer can charge a €30 overdraft fee to cover the transaction, generating a substantial profit from a single event.

Debit card issuing is a low-risk, volume-driven model. The revenue per transaction is lower, but the absence of credit risk and the potential for high transaction counts and fees make it a viable and attractive business.

Prepaid Card: The "Zenith Budget Card" Model

A company offers a prepaid card designed for strict budgeting or for individuals without a traditional bank account.

• Earning from Fees: A customer buys the card and pays a €5 activation fee. They then load €100 onto the card, incurring a €2 reloading fee. If they continue to reload the card bi-weekly, the issuer earns a steady €4 per month in reloading fees alone. There might also be a €3 monthly fee and small transaction fees on top of this.

• Earning from Interchange: The prepaid card also earns a small interchange fee on every purchase, providing an additional layer of revenue.

The prepaid model is built on a fee-centric structure, making it a low-risk, predictable revenue source that is highly accessible to customers with a variety of financial needs.

Beyond Direct Revenue: The Strategic Value of Card Issuing

The earnings from card issuing extend far beyond financial transactions. A successful card program provides a host of strategic advantages:

• Enhanced Customer Loyalty: A branded card with exclusive rewards and perks can significantly increase customer retention and engagement.

• Valuable Data: Issuers gain direct access to powerful transaction data, providing deep insights into customer spending habits and preferences. This data can be used for targeted marketing and to inform new product development.

• Embedded Finance: By integrating a card program directly into a business's core offering - such as an expense management platform for businesses or a loyalty program for consumers - the card becomes a seamless part of the user experience, transforming a service into a new profit center.

In conclusion, the potential to earn money by issuing your own cards is substantial. The amount of profit is determined by the chosen card type and the target customer base, but the fundamental revenue streams from interchange, interest, and various fees provide a strong foundation for a profitable business.