Annals of Card Economics: Citi's Migration to Business Cards

A friend writes: "I recently received a letter from Citibank telling me they're replacing my existing Citi Diamond Preferred Rewards card with a CitiBusiness card? Among other things, they're reissuing my card with a new account number. What's this all about?"

We can only speculate about the reasons behind Citi's replacement - and our speculation is that this reissuance is all about card interchange economics. Cards classified as business cards have historically had higher interchange fees associated with them - paid to the issuer by merchants - primarily because to get issuance the card associations had to make the cards economically viable for issuers who wouldn't typically be receiving any significant revolving interest income from such cards. In today's rewards-oriented environment, higher interchange fees to the issuer are the power behind the funding of rewards programs for cardholders. So, who loses? Merchants lose -- because of the higher fees they'll be paying on those new business card transactions.