My Citi Custom Cash card gives me 5% back on gas station purchases (my highest category), even paying the higher price at the pump for credit cards I still come out ahead. I'm fairly certain Citi is not making 5% on interchange fees
It’s a loss leader that is usually capped. They are marketing against other cards in your wallet. Most consumers use a card or two so the habit of buying gas drives more spend.
Discover does the same thing with quarterly promos. They are paying 5% for the first $1500 of Apple Pay/Google Pay transactions… an incentive to add Discover to your wallet.
Gas is also unique. Our local supermarket chain gives you gas discounts for spend. People are always annoyed about gas so they fixate on saving $1/gallon, forgetting that they spent $1000 at the most expensive grocery chain so they can save $12-20 for a fillup. That $12 probably cost them $50.
Isn't it easier to assume Citi is recovering the 5% via interchange fees versus Citi is losing money every time a customer uses an advertised card feature.
Citi is definitely not earning 5% via interchange fees, this is known. While they might lose some money on the 5% for some credit card users that use it correctly, it is most likely more than made up for by other credit card users who either use the credit card for other types of purchases and receive much less in rewards, resulting in a net gain.
Or citi has figured out that certain users of the card carry a balance and they spend more on interest than it costs in Citi in rewards. If the situation changes and Citi is losing money, then they change the reward amount.
