Card Issuing as Interchange Subsidy
Banking-as-a-Service: The $1T Market to Build the Twilio of Embedded Finance
Card issuing turns payments volume into a subsidy that can fund the rest of the product. Once a company earns a cut of interchange every time users spend, it can make the card, the app, or the software feel free at the front end, then recover cost from merchants on the back end. That is why Square, Klarna, and Ramp used cards not just to add a payment method, but to change who pays and how they grow.
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The workflow is concrete. Klarna can create a single use virtual card for a $200 purchase, the merchant pays interchange on that transaction, and the economics are split across the network, bank, infrastructure provider, and Klarna. The product looks like checkout convenience, but the business model is transaction monetization.
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This is especially powerful in B2B. Ramp used card issuing to bundle a free corporate card with expense software, then got paid when customers routed company spend through the card. More spend meant more interchange, which funded customer acquisition and made free a credible pricing strategy.
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The same pattern shows up across fintech and vertical software. Interchange gives companies a reason to pull payment flow inside their own product, because owning the spend flow can be worth more than charging a seat fee alone. Over time, many mature players layer SaaS on top, but interchange is the wedge that gets adoption moving.
The next phase is broader embedded finance. As card issuing gets combined with lending, accounts, bill pay, and treasury, more software companies will redesign pricing around monetizing money movement rather than charging upfront software fees. The winners will be the ones that can capture the most spend inside their workflow, then expand into higher value financial products around it.