Tim Kessel, associate professor for the School of Business and Entrepreneurship at Dickinson State University, was featured in WalletHub's review of the Citi Double Cash Card. Here is his contribution, courtesy of WalletHub.

Expert Thoughts on Citi Double Cash Card

How can a credit card such as Citi Double Cash, which gives 2X the market average in rewards and has a $0 annual fee, be profitable for the issuer?

Credit card companies offer reward points to individuals because it is profitable.

The double cash back program offered by Citibank is a solution where everyone benefits the bank and its customers. This rewards program has a lot of moving parts. The customer receives “points” equal to 1% of credit card charges. When the minimum payment is paid, the customer receives an additional 1%. Citibank offsets these reward points with a charge to the selling merchant ranging from 1.5% to 3.5%. If the customer does not pay the required minimum balance, no points are awarded, and an interest rate ranging between 15.49% and 25.49% is charged on the customer balance.

An example illustrates this program.

Suppose the customer charges $1,000.00 during the month. Assume the customer pays the balance in full when the statement arrives. The customer receives points equal to 1% ($10.00), and another 1% when the minimum payment amount or balance is paid. In this example, the points turn into $20.00. The merchants where the charges incurred are charged a fee when the transaction occurs. The fee varies by merchant depending on the history and volume of transactions between each merchant and Citibank. Citibank receives a minimum of 1.5% ($15.00), to a maximum of 3.5%% ($35.00). The breakeven point for Citibank would be equal to the 2% ($20.00) cashback.

To achieve a profit, either some customers do not pay the minimum amount due, and thus would incur a late fee (29.99% of the unpaid amounts), or the involved merchant fees would be greater than 2%. If the minimum payment is not received, no reward points are earned. Citibank’s profit would then range from 4.79% to 5.62%, depending on the merchant charges.

Other program factors contribute to Citibank's profitability. A 3% fee or $5.00 minimum whichever is greater is charged when the customer requests and receives a balance transfer. Citibank’s balance transfer program offers the customer 0% interest for the first 18 months when approved. If the customer utilizes the cash advance feature, a $10.00 fee plus 5% of the advance amount is applied.

Do you think everyone should have a $0 annual fee cash back credit card?

Every credit card company has a different rewards program. The potential customer must consider the terms, rewards, and benefits of the credit card offerings. It is a personal decision to consider all options. Nothing is ever “free”. The customer must review those terms and weigh the benefits against the potential costs.

According to a recent online article published by Bloomberg, the United States inflation rate increased to 9.1%. The Fed has suggested an additional rate increase coming shortly. Credit card companies weigh and evaluate rewards programs continuously. It is the opinion of this author that the merchant rate will increase if the inflation rate continues to increase. This would facilitate the offering of additional consumer rewards programs, and possibly a triple cash back reward program.