Who really pays for cashback?
Nobody gives away money. Cashback is a marketing budget that has learned to wear a smile.
Your cashback is a slice of a fee you never saw.
The fee hiding inside every card payment
Every card payment carries a fee the merchant pays. A slice of it, called interchange, goes to the bank that issued your card. That slice is what pays for your rewards points, your lounge access and a good chunk of your cashback. The issuer is not being generous. It is giving you back a portion of money it earned from your purchase, so that you keep making purchases with its card instead of someone else's.
The four wallets it comes out of
Brands and merchants pay when they want to win a sale, clear stock, or steal you from a competitor. That "10% off with XYZ Bank cards" is often funded partly by the brand and partly by the bank, in a deal you never see.
Card issuers pay mostly from interchange, and occasionally top it up to grow market share.
Apps and platforms pay to acquire you. This is the most generous cashback and the most temporary. It is at its best on day one and quietly shrinks once you have made the app a habit.
And you pay, when the fine print does its job. Cashback that expires. Cashback that only arrives as points you can spend in one place. A minimum spend that nudges you into buying something you did not plan to buy.
The two traps
The first is chasing the percentage instead of the price. Ten percent back on an inflated price can cost more than no cashback somewhere cheaper. The number that matters is what you actually paid, after everything.
The second is forgetting the words around the number: "up to", "capped at", "on select items", "valid for 30 days". That is where the real offer lives.
A shop gives you a coupon for next month, redeemable in-store only, on purchases over ₹2,000. It feels like a gift. It is actually a very polite invitation to come back and spend ₹2,000.
Where you meet it
Every scratch card that says "better luck next time". Every bank offer banner at checkout. Every app that was wildly generous in its first month and has been getting slightly less generous ever since.
FAQ
Who funds credit card cashback? Mostly the card issuer, from the interchange fee the merchant pays, sometimes co-funded by brands.
Why do cashback offers shrink over time? Platforms spend most to win new users, then reduce offers once people stay.