Chapter 10

The three taps

Published 29 September 2026

A credit card account is not one business. It is three - interest, interchange and fees - blended into a single number until nobody can tell who is paying for what. The blend is the trick.

Tap one is interest: 3% to 3.75% a month on revolving balances, roughly 36% to 45% a year, a price few legal lending products in India can match[1]. Tap two is interchange: every time any card is swiped, the merchant pays a fee that is split three ways - the largest share to the issuing bank, a smaller one to the merchant's bank, the smallest to the network. Unlike debit, credit MDR was never capped in India: gateways publish around 2%, large merchants negotiate it down to 1.4-1.6%. Tap three is the fee menu: annual fees, late fees, forex markups, EMI processing fees, even a fee for redeeming the reward points the card advertised - with 18% GST on top, a line most comparisons politely omit.

The transactor's invisible invoice

Pay in full every month and tap one never touches you. Tap two does not care. The issuer collects interchange on every transaction you make, and the merchant does not absorb that cost - it prices MDR into what everybody pays, including the customer paying cash[1]. So the "free" cardholder pays for the system twice removed: at the till, invisibly, in the price of the goods. When a card offers 5% back on a category, the issuer is spending part of its interchange to buy your spending behaviour - and betting the rest comes back through interest and fees.

Why the blend exists

Separately, the three taps tell an embarrassing story. Revolvers and EMI conversions - the interest-paying book - are roughly six in ten rupees of SBI Card's receivables, while transactors, around four in ten accounts, contribute thin interchange and on a free card with rich rewards can be outright loss-making. Blended, the same book reads as one healthy yield. The high-yield customers subsidise the perks that keep the low-yield ones swiping, and the low-yield swipes keep the interchange flowing. Neither half sees the other's bill.

There is one more clause the blend hides. Pay anything less than the full amount - even once - and the interest-free period is withdrawn retrospectively on the whole balance, not just the unpaid part. A member of the 30% club is rarely made by a decision. It is made by one short month, backdated.

Add the three taps together and the brochure's arithmetic inverts: the perks are not the issuer sharing its margin. They are a cost reallocated - onto the revolver's 45%, the merchant's 2%, and the fine print's retrospective clock. One question is left: if the cardholder funds it all, who exactly funds yours?