##### Scenario A credit-card company is evaluating whether to offer a new 1%-cashback card alongside its existing no-cashback card. ##### Question What are the main revenue and cost components for a credit-card issuer? Given: both cards charge the same interest rate y% on carried balances and earn x% interchange on transactions. Non-cashback users carry an average balance of $1,000. How large must the average balance on the cashback card be for the product to break even? ##### Hints List interchange, interest income, default risk, rewards cost, servicing. Set profit_no_cashback = profit_cashback and solve for required balance.

This interview question evaluates metric design, causal reasoning, experiment setup, diagnostics, SQL/statistical checks, and recommendations in a realistic interview setting. A strong answer for Determine Revenue and Cost Components for Credit-Card Issuer states assumptions, handles edge cases, explains trade-offs, and shows how to validate the result clearly.

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This is a medium difficulty Analytics & Experimentation question, commonly asked during Onsite rounds at Capital One.

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Determine Revenue and Cost Components for Credit-Card Issuer

Credit-Card Issuer Unit Economics and Break-even Analysis

Scenario

A card issuer is considering launching a new 1% cashback card alongside its existing no-cashback card. Both cards:

Earn x% interchange on purchase transactions
Charge the same interest rate y% on carried balances (APR)

For the existing no-cashback card, users carry an average balance of $1,000.

Assumption (to close the math cleanly): For a typical revolver, purchase volume over the period is roughly comparable to the average carried balance for that period (i.e., spend ≈ balance), so interchange and rewards can be modeled per dollar of average balance. Time bases (e.g., annual) are consistent across rates.

Tasks

List the main revenue and cost components for a credit-card issuer.
Using the setup above, compute how large the average balance on the 1% cashback card must be for the product to break even with the no-cashback card.

Optional generalization: If spend-to-balance ratio r = (spend)/(average balance) is known rather than assuming r ≈ 1, express the break-even in terms of r.

Constraints & Assumptions

Preserve the scope, facts, inputs, and requested outputs from the prompt above.
If the prompt leaves a detail unspecified, state a reasonable assumption before relying on it.
Keep the answer interview-ready: concise enough to present, but concrete enough to implement or evaluate.

Clarifying Questions to Ask Guidance

Clarify the business objective, unit of analysis, time window, exposure definition, and primary metric.
State assumptions about instrumentation, randomization, sample size, and data quality.
Separate descriptive analysis from causal claims.

What a Strong Answer Covers Guidance

A metric framework with primary, guardrail, and diagnostic metrics.
A credible analysis or experiment design with clear assumptions and bias checks.
SQL/statistical logic for segmentation, variance, confidence, and data validation where relevant.
An actionable recommendation that explains trade-offs and next steps.

Follow-up Questions Guidance

What sanity checks would you run before trusting the result?
How would you handle novelty effects, seasonality, or selection bias?
What decision would you make if metrics disagree?