Hey folks, Pratham here.

Welcome to Paradox Weekly, a Masters' Union newsletter, where we break down the ideas, trends, and contradictions shaping business today.

Last week, HDFC Bank started tracking a new metric for Infinia cardholders: spend ₹18 lakh annually or lose the card.

There was no email, SMS, or an official announcement.

Users discovered it buried in their reward dashboards.

Members of the TechnoFino community found an internal document dated October 31, 2025: effective January 1, 2026, either spend ₹18 lakh per year or maintain ₹1 crore relationship value with HDFC Bank.

The internet called it unfair.

Banks changing rules without notice.

But the outrage missed something bigger.

That ₹18 lakh threshold reveals exactly how credit card rewards have always worked.

And that’s what we’re going to dive deeper into in today’s edition.

Being recognised for our content efforts always makes my day! A large team spends an exorbitant time on it daily!

We take learning by doing seriously! A BTS of our students at Mundra port (right before they went to Adani’s plant!)

When you swipe a credit card for ₹10,000, the merchant doesn't receive ₹10,000.

They receive roughly ₹9,800.

The missing ₹200 is called MDR, the Merchant Discount Rate.

It gets split three ways: about 74% goes to the card-issuing bank as interchange, 14% to the card network (Visa, Mastercard, RuPay), and 12% to the payment processor.

They're underwater on transactors.

So where does the profit come from?

From the people who miss payments.

Credit card interest in India runs 42-46% annually.

A cardholder who revolves ₹1 lakh in debt pays ₹42,000-46,000 in interest per year.

That interest subsidizes the rewards for cardholders who pay in full.

This is the architecture of credit cards.

Transactors extract value from a pool funded by revolvers.

Arun, a 37-year-old techie in Bengaluru, spoke to The Core about how he became a funder.

It started with missed payments.

Then minimum due cycles. Then EMI purchases he stopped tracking. He accumulated ₹1.5 lakh in credit card debt over a few years.

The irony: losing his job was his path to financial freedom.

Arun isn't an edge case.

Credit card NPAs surged 28% year-on-year to ₹6,742 crore in December 2024, a fivefold increase since 2020.

Outstanding credit card debt hit ₹2.92 lakh crore, up from ₹87,686 crore in March 2019.

The system needs Aruns.

Without revolvers paying 46% interest, the rewards math collapses.

A 2023 IMF study analyzed 200 million US credit cards and quantified the transfer.

Sophisticated cardholders who pay off balances monthly gain $20 per month on average from rewards cards.

Subprime cardholders with the same high income lose $12.80 per month.

The annual redistribution: $15 billion flowing from less educated to more educated, from poorer ZIP codes to richer ones.

The researchers called it a "reverse Robin Hood" mechanism.

The finding that surprised them: income alone didn't predict who won or lost.
Financial sophistication did.

High-income revolvers subsidized low-income transactors.

India's version adds another layer.

UPI carries zero merchant fees because the government subsidizes infrastructure at ₹1,500 crore annually.

Credit card MDR stays at 1.5-3%.

Merchants can't charge different prices for different payment methods, so they raise prices uniformly.

The kirana customer paying cash pays the same inflated price as the Infinia holder.

Only one gets 3.3% back.

India's household financial savings fell from 11.5% of GDP in FY21 to 5.1% in FY23.

A 47-year low.

EMI changed the language.

A ₹1 lakh iPhone is ₹8,333 per month. 70% of iPhones in India are reportedly purchased on EMI.

The RBI stated in a 2013 circular that "no-cost EMI" doesn't actually exist.

Processing fees, manufacturer subsidies, and foreclosure penalties add ₹1,500-2,000 in hidden costs per ₹1 lakh purchase.

Indians still judge people who take loans.

But buying on EMI is aspirational.

The debt is identical.

America's credit card debt hit $1.14 trillion in 2024.

Delinquency rates reached their highest since 2011.

But America caps credit card interest through market competition and regulatory pressure.

The average US APR is around 22%.

India has no interest rate caps on credit cards.

Banks can charge 46% annually.

Legally. The RBI requires only that issuers prescribe ceilings in "Board-approved policies" that are "justifiable."

No regulatory limit. No ceiling.

We imported the American credit card playbook without any of the guardrails.

Here's my read

The RBI raised risk weights on credit card receivables from 125% to 150% in November 2023. Growth slowed. The underlying structure stayed the same.

Credit cards are a two-player game disguised as a one-player game.

Every cardholder thinks they're playing against the bank.

In reality, transactors and revolvers are playing against each other.

Transactors extract rewards funded by revolvers paying 46% interest.

The bank sits in the middle, taking a cut from both sides.

HDFC's ₹18 lakh requirement makes this explicit.

The Infinia rewards don't come from HDFC's goodwill.

They come from merchants and revolvers.

Credit cards offer genuine benefits.

Credit building. Purchase protection. Cash flow flexibility. Rewards for disciplined users.

But those benefits require a supply of people who fail to be disciplined.

The more people default at 46% interest, the richer the rewards for those who don't.

The more merchants absorb MDR costs, the better the cashback for cardholders.

The rewards math only works if enough people lose.

The number of credit cards issued crossed 100 million in India last year.

Outstanding debt tripled in five years.

NPAs are growing 28% annually.

The next time someone complains about losing their premium card privileges, ask them where they thought those privileges came from.

I read every email.

Until next week,
Pratham