This is not a valid argument.

Some cards have 5% or 5x rewards. We all know that almost no CC companies can afford to pay out 5% to 7% cash back or equivalent. But CC companies still offer them. With your logic, CC companies should not even offer them since they are losing money. This is within the entire card portfolio offering.

As to Citi DC, Citi has various other expenses to support its DC CC. Even if it gets 2% or even 3% swipe fees, if you count all of its card related expenses, I do not think Citi would make any $. Also, I do not even think Citi makes that high a swipe fee, particularly from the large merchants like Costco etc. Citi would rather people use other cards with no or very low rewards. It also makes money on its credit card balance portfolios.

This is why Citi DC has been one of the most popular cards out there, particularly with the masses who are not into points and miles.