Earning Revenue By Issuing Cards

Platforms that only accept payments are just renting financial infrastructure. Platforms that issue cards own the ecosystem. But the platforms that issue cards are running it. 

This shift is from being a payment acceptor to having a financial operating system for your sellers, vendors, employees, and customers. Interchange fee is the headline revenue line, but in India, this margin is thin. 

So you need to treat this as an upside and not as a business case. The return received by card issuers against this activity is justified in three places;

• Control over spend
• Lower payout costs
• One reconciled view of money coming in and going out

Let’s understand completely how platforms earn revenue by issuing cards, the unit economics behind this system, RBI constraints, and the API architecture. 

How Does Card Issuing Earn Revenue in India?

By issuing cards, you earn a pre-negotiated share of the issuer-side interchange on every card transaction. Operating quietly within the standard four-party network, the platform takes its cut based on a pre-programmed agreement.

How the Funds Flow Between Four Parties?

1. The cardholder pays a merchant.
2. The merchant’s acquirer (the bank or payment aggregator that holds the merchant account) sends the authorisation request to the card network, such as RuPay or Visa.
3. The network routes it to the issuer, the entity whose BIN sits on the card. BIN stands for Bank Identification Number, the leading digits that identify the issuer.
4. The issuer approves or declines, and later settles to the acquirer net of interchange. The acquirer pays the merchant net of its fees.

The merchant pays one fee for all of this: the Merchant Discount Rate (MDR). The MDR splits three ways. Interchange goes to the issuer. Scheme fees go to the network. The acquirer keeps a markup. As a platform issuing cards, you earn from the first slice, indirectly.

The Dynamics of Indian MDR 

The MDR varies in the Indian market according to the instrument used for making the payment. So, from debit cards to UPI and PPI cards, the MDR is different. 

• Debit Cards: RBI-prescribed MDR caps apply to debit cards, and they are tiered by merchant turnover plus the channel used, like POS or QR.
  • For physical POS or mPOS transactions, the cap is;
    • 0.40% (maximum ₹200 per transaction)
    • 0.90% (maximum ₹1000 per transaction)
  • For QR-based card acceptance, the caps are;
    • 0.30% (maximum ₹200 per transaction)
    • 0.80% (maximum ₹1000 per transaction)

• RuPay Debit Cards: By regulation, RuPay debit cards have zero MDR. 

• Credit Cards: MDR on credit cards is not capped by the RBI, but the acquirers, card networks, and issuers set it commercially. The Indian payment gateway pricing today is set between 1% and 3% depending on the merchant category, ticket size, channel, and the negotiated agreement. 

• UPI: Starting from 15th October 2026, MDR on UPI is 0.4% for all P2M transactions above ₹2000. 

MDR components charged on every transaction include the acquirer markup fee, network fee, and the interchange fees. How much the platform takes away is based on the interchange line set in the commercial agreement. 

So for the entity issuing cards, here’s how you can calculate the net revenue.

Net revenue = (GTV × average interchange rate) − (network fees + sponsor bank share + issuing platform fees)

GTV represents the gross transaction volume, which is the total rupees spent on your cards, and the following three inputs impact the final figure;

• Active spend matters more than the issued cards. Issuing one lakh cards doesn’t matter if 90,000 don’t spend. Only those 10,000 cards at ₹500 monthly spend each will generate ₹50 lakh GTV. 

• Any spend that falls in the zero MDR bracket does not generate any revenue. 

• The average ticket size also matters, as wherever fees carry fixed components or caps, the revenue changes as per the ticket size. 

How to Increase Interchange Revenue?

The rates that lead you to generate revenue depend on the regulations and the contract. So your ability to generate more revenue depends on increasing card activity and specifically covering transactions that attract MDR. 

• Make the Card Default Payment Mode: RuPay debit cards have zero MDR, and UPI MDR only applies to payments of ₹2000 or more. So you need to make cards the primary source of making payments for your customers, but without hiding away other methods, as doing so will invite scrutiny.
  
• Build Rewards for Higher User Spending: The Merchant Category Code (MCC) is the four-digit code that classifies a merchant. It’s narrower in the Indian market than it is in other markets. Use rewards and more such options to move your customers’ spending habits towards cards.
  
• Issue Physical Cards: It’s a simple rule that if you issue more cards, there are higher chances of those cards being used by customers. Physical cards add POS and ATM channels to the mix, and this offers more potential to increase GTV. 

Beyond Interchange | What Drives Profit and Loss for Card Issuers

Building a card programme for the Indian economy to generate interchange revenue is profitable but only if you also leverage other operational margins. The true financial return of issuing cards is based on cost reduction and ecosystem thickness. 

1. Zero Cost Payouts to Vendors

Platforms with a high volume of transactions like marketplaces, travel agencies, and aggregators process thousands of payouts every day. All these are your vendors. 

Now, pushing funds to these vendors’ external bank accounts using IMPS or NEFT with a standard payout gateway has a flat fee per transaction. The fee is small. 

But multiply it across lakhs of payouts, and it will drain your margin. So the best approach is to issue prepaid cards to the vendors instead, and then the payout becomes an internal ledger transfer. 

2. Capture the Capital Float

When you issue a card, the funds remain inside your platform’s stored-value ecosystem until the exact moment of the transaction. This means you are not transferring this capital to an external bank account.

Retaining this money in-house for extended periods improves your balance sheet and reduces reliance on external credit lines to manage cash flow. 

3. Spend Control

Set limits on each card. Split balances into sub-wallets for set purposes, such as meals or fuel. Let the system decline anything outside your rules. This replaces checking expense claims after the money has gone. The saving shows up as fewer finance hours and less leakage. Measure both before and after launch.

4. Automated Single-View Reconciliation

The finance team loses hours, time that costs you money, cross-referencing payment gateway settlements with vendor payout logs. However, if you use a unified infrastructure for collections, payouts and cards, it means fewer systems, fewer ID formats and fewer cut-off times to match.

Cashfree offers this unified single reconciliation system through Gateway+ and FlowWise offerings; reconciliation happens at the AP level. As a customer pays, the system credits the internal ledger, and those exact funds instantly become available on issued corporate cards. 

Architecting the Program: API Workflows and Spend Controls

You do not need to understand mainframe banking to issue cards. Modern API infrastructure turns card issuance into a software configuration.

• Just-In-Time (JIT) Funding: Earlier, companies had to pre-fund thousands of individual corporate cards, which often meant tying up huge amounts of capital on dormant accounts.
  
  But the modern way of doing the same is JIT funding. The cards carry a zero balance, and when an employee or vendor swipes the card at a terminal, the authorisation request pings your server.

The internal logic verifies the user, checks the available balance on the platform, and approves the transaction. This system funds the cards in milliseconds while ensuring you keep the capital centralised until the moment it’s needed. 

• Programmable Spend Restrictions: You have control over how and where the money moves. Managed through API calls, you can block specific Merchant Category Codes (MCCs). This means if you issue a travel expense card, you can configure it to decline at predetermined terminals. 

Moreover, you can also set dynamic rules that restrict transactions across borders, set spending limits by the hour, and even generate single-use virtual cards that self-destruct after one successful charge. 

Addressing the High-Friction Entry Barriers and Regulatory Moat

Compliance is the biggest hurdle to entering the financial services business, and the RBI has set tight controls on who can issue payment instruments, especially cards. You cannot simply print cards and hand them to users. 

1. BIN Sponsorship: To issue cards, you need a Bank Identification Number (BIN), and only regulated banks that are managed and supervised under RBI rules have a BIN.
   
   Issuing without a BIN means negotiating with a sponsor bank, a process that can take 12 to 18 months of negotiations. Plus, you need to prove PCI-DSS compliance and build a custom ledger to handle the bank’s legacy file formats. 

Why Do You Need a BIN Sponsor?

Issuing a prepaid instrument is a regulated system activity under the Payments and Settlement Systems Act, 2007. Hence, non-banking entities need RBI authorisation. 

2. Handling the Compliance Burden: Compliance is complex for the issuing entities, and along with this, there are several other regulations to follow. This is where API-first BaaS platforms are useful.
   
   Platforms like Cashfree offer the abstraction layer between your platform and the sponsor bank. As the issuing authority, you will integrate a single API; compliance, network certifications, and banking relationships are handled on the backend. 

3. PPI Master Directions: RBI has issued Master Directions on Prepaid Payment Instruments (PPIs). As card issuers, you need to understand the difference between Minimum-KYC wallets that have capped limits and restricted fund transfers compared to full-KYC wallets.
   
   Well-established card issuing partners provide automated KYC onboarding flows required to keep your program strictly within the regulatory bounds without breaking the user experience. 

Conclusion

Issuing new cards meant spending over a year negotiating with banks and building custom ledgers. That has changed today. 

Now it’s nothing more than a software feature that you can configure and launch in weeks. 

Interchange is the key component that funds the entire ecosystem, from issuing the cards to running the infrastructure behind them. When you look beyond the direct interchange revenue and include zero-cost payouts, centralised working capital, and automated reconciliation, issuing these cards becomes a massive operational advantage. 

Ready to turn your platform’s outbound payments into a revenue stream? Partner with Cashfree Payments. Create an account, hand our API documentation to your engineering team, and run a test transaction in the sandbox today to see the unified ledger in action.

FAQs

1. What is an interchange fee?

An interchange fee is paid by the merchant’s acquiring bank to the card-issuing bank or the issuing platform for processing a transaction. This fee compensates the issuer bank for the risk and cost of managing the cardholder’s account. 

2. What is a BIN Sponsor?

BIN means Bank Identification Number, and only regulated banks can own a BIN. Any tech platform or business that wants a BIN must partner with a BIN sponsor bank to legally issue cards. API-first platforms like Cashfree handle the banking relationship at the backend so you don’t have to go through the lengthy negotiation process. 

3. How does card issuing improve ledger reconciliation?

When you use different vendors for accepting money and sending money out, the finance team has to match reports, that too manually. Using a unified system for payment gateway and card issuing means a customer’s payment automatically updates the internal ledger and instantly makes those funds available for the issued cards. 

4. Do card issuing entities make money on every single swipe in India?

No, they don’t make money on every swipe. The RBI regulates MDR and has set rules for which cards and transaction types will attract a fee. RuPay debit cards currently have a zero MDR mandate, which means neither the network nor the issuer earns any fee on these transactions. Revenue generation only comes from transactions that fall under commercial MDR brackets.