[Kirby64]

Although, yes, banks pass costs to merchants... the thing is, banks do in fact lose money if you are savvy enough with rewards usage/sign up fees/etc. Take a look at the churning forums some time; it would be impossible for banks to actually be making money on this and also pass it along to merchants. The money is coming the ratio of consumers that pay interest (at ~20% or whatever outrageous fee they get) on their credit card bills.