How Do Credit Card Rewards Work?


gifting a credit card reward

Nowadays, rewards have become part and parcel of the whole credit card experience. Every time we pay for something with our cards, most of us instinctively expect to receive some form of rebates or points which we can accumulate to redeem gifts and vouchers, which leads us to the question: How do credit card rewards work?

The parties involved

Before we proceed, let’s take a moment to ascertain the parties who are involved in a standard  card transaction (other than you, the card user). Commonly, they are:

  • The Merchant, which refers to the outlet in which you make the transaction.
  • The Merchant’s Bank, which provides the point-of-sale terminal and system that enable the Merchant to accept credit transactions.
  • The Card Network, which refers to entities such as Visa, MasterCard etc. which facilitates credit transactions and settlements.
  • The Issuing Bank, which refers to the bank that issued the credit services you’re using.

How are you being rewarded?

The truth is, when you make a purchase using your credit payment card, the merchant does not get 100% of the payment you’ve made.

Instead, a percentage of the payment is divided between the merchant’s bank, the card network and the issuing bank (i.e. the percentage is different from merchant to merchant and depends on factors such as sales volumes as well as the arrangements with the banks). Part of this is then set aside by the issuing bank to fund its reward programme.

What this means is that the merchants are effectively bearing the cost of giving you rewards by having a fraction of their credit payment transactions deducted for such purpose. So next time you go shopping, make sure you thank your favourite retailers for helping finance your card’s reward programme!

Common practice in Malaysia

In Malaysia, many consumers have reportedly been asked to pay an additional 2-3% surcharge for card transactions, especially by small-time merchants. In such cases, the merchants are essentially passing on the aforementioned charges they have to incur (i.e. to be paid to the merchant’s bank, the card network and the issuing bank) over to you, the consumer.

However, do note that according to a report by The Star some time back, this practice is actually not allowed in Malaysia and should be reported to the authorities, as seen in the following statement:

Credit-card users who are told to pay extra if they use their cards instead of cash should be aware that merchants are not allowed to impose merchant fees on users as stipulated in the card associations’ operating regulations.”


Love this article? You may also want to check out our infographic detailing what happens behind the scene every time you swipe your credit card to make a purchase.

Alternatively, check out our credit card comparison table to see the kinds of rewards card companies are offering right now!


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