Rewards

Every credit card rewards program is structured differently.  You receive a cashback bonus of 1%, 2%, or 5% depending on where you shop. These rewards are generally thought of as being funded by a component of the fees that a merchant has to pay to accept credit cards called interchange or merchant discount. This fee can be fixed or variable and can vary based on the merchants' negotiated agreement with an acquiring bank/credit card processor, with a nationwide average of 1.79%.
Usually it is the sponsor of the program who pays for credit card bonus points, that could be either the bank behind the credit card (in case the card is not affiliated to a brand) or the co-branding company (such as the store or airline, etc). Fraction of the revenue is deferred until the points are redeemed in the future. The expense associated with the program are under the marketing budget.

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