Rewards on an American credit card are not a marketing giveaway funded by the issuer's goodwill. They are paid out of a specific fee that moves on every transaction.
A swipe moves money in more than one direction
When a card is used, the merchant does not receive the full ticket price. A portion is retained and distributed among the parties that made the transaction possible.
The largest slice is interchange, which the merchant's acquiring bank pays to the bank that issued the card. The card network sets the rate schedule.
Smaller amounts go to the network itself and to the payment processor. What reaches the merchant's account is the sale minus all of it.
Interchange rates are not uniform
Networks publish rate tables that vary by card type, merchant category and how the transaction was accepted. A premium rewards card carries a higher rate than a basic one.
Debit cards generally clear at lower rates than credit cards, and cards issued to businesses often carry higher rates than consumer cards.
The card-present transaction at a terminal is priced differently from an online transaction, because the risk of fraud and dispute differs between them.
The reward is a rebate of that fee
The issuer receives interchange and returns part of it to the cardholder as cash back or points. The richer the reward, the higher the interchange the card must generate.
This is why a card advertising elevated rewards usually carries an annual fee and stricter approval standards. It needs both a fee stream and heavy spending to fund the payout.
It also explains why rewards concentrate in categories where merchants have historically accepted higher rates, rather than being spread evenly across all spending.
Merchants respond in visible ways
Because acceptance costs vary, merchants have reasons to steer customers toward cheaper methods. Cash discounts, card surcharges and minimum purchase amounts are all responses to this cost.
Some merchants build the cost into shelf prices instead, which spreads it across every customer including those paying by other means.
Businesses with thin margins and small tickets feel it most, since a per-transaction component weighs more heavily on a small sale than a large one.
The fee is regulated in parts, not as a whole
Debit interchange in the United States has been subject to a statutory cap for larger issuers, which is why debit rewards became scarce while credit rewards did not.
Credit interchange remains set by the networks, and it has been the subject of long-running litigation and legislative attention over how rates and acceptance rules are established.
Understanding the plumbing does not change any individual's choice of card. It does explain why the offers look the way they do rather than being arbitrary.