How can citibank possibly be making money on their 5% card?

[StageLeft]

So this 5% card is 5% cash back on any purchase from a grocery, drug store, or gas station. I've had one for afew months and I NEVER use it except at these places. I also pay the balance off every month. So, citibank is paying out 5% on each purchase, plus absorbing all administrative costs and those related to sending statements (actually I have an online one, but I don't have to have it online), and my check every few months. Are they really charging these stores more than 5% to use a credit card, so that they can make profit?

 

[jEct2]

economy of scope.

they make $$ off idiots that manage their CCs poorly.

# of idiots >>>>>>>>>>>>>>>> ppl like you

 

[Miramonti]

Good question...I'd be curious to read the penalty print to see how suicidal it is for the majority of people that sign up for that card.

 

[RagingBITCH]

Originally posted by: jEct2
economy of scope.

they make $$ off idiots that manage their CCs poorly.

# of idiots >>>>>>>>>>>>>>>> ppl like you

What's your interest rate Skoorb? Majority of people don't pay off their CC's in full. I personally do. But what ject2 said is true for the majority of CC users.

Interest on revolving balances >>>>>>>>> 5% cashback.

 

[StageLeft]

Originally posted by: jjsole
Good question...I'd be curious to read the penalty print to see how suicidal it is for the majority of people that sign up for that card.

That's the thing, it's really not bad. My interest rate is maybe 11.5% and penalties are similar to other cards... Maybe they want to build customer loyalty, which is a comical sentiment.

 

[cain]

don't forget commercial banking is only a part of citi's operation.

 

[Thegonagle]

5% back? That's OUTRAGEOUS!

As for how they make money?

Obviously, they make money on interest, but one thing that's not obvious to most consumers is that the credit card companies keep an easy 2-3% off the top of every transaction. (Which is why 5% cash back seems extra nuts; 3% is more common, and more reasonable.)

EDIT: And skoorb knows this. And I've added nothing to the thread.

 

[irwincur]

Because they charge 15% - 30% interest depending on who you are.

 

[dullard]

We just talked about it this morning. They make ~$0.54 in store fees on your $1 coffee purchase. Then they give you 5 cents back. Net profit: $0.49 per coffee you buy.

The standard credit card is roughly 50 cents per transaction plus roughly 4% of the total price. Yes some cards are lower in transaction fees (maybe 40 cents). And yes some are lower on percentage (maybe 3%). But they still make a killing.

The interest they charge the stupid customers who carry a balance just balances the money the CC company loses by (1) borrowing that money and (2) bad debt that customers never pay. #2 gets lumped in this group since it is only those who carry a balance who never pay (think about it).

The store fee is basically pure profit to the credit card company. If they choose to share a bit of it with you, they can.

 

[StageLeft]

So the consensus is that on people like me this program is a liability for them?

 

[jaedaliu]

Originally posted by: Thegonagle
Obviously, they make money on interest, but one thing that's not obvious to most consumers is that the credit card companies keep an easy 2-3% off the top of every transaction. (Which is why 5% cash back seems extra nuts; 3% is more common, and more reasonable.)

The 1% they offer on everything else will still net them money. AND they're making money on interest for people that keep a running balance.

chase has a card that's 5% on gas station, super market, drug store, and home improvement store purchases. looks like they just one-upped citi.

 

[StageLeft]

Originally posted by: jaedaliu

Originally posted by: Thegonagle
Obviously, they make money on interest, but one thing that's not obvious to most consumers is that the credit card companies keep an easy 2-3% off the top of every transaction. (Which is why 5% cash back seems extra nuts; 3% is more common, and more reasonable.)

The 1% they offer on everything else will still net them money. AND they're making money on interest for people that keep a running balance.

chase has a card that's 5% on gas station, super market, drug store, and home improvement store purchases. looks like they just one-upped citi.

Damn, time for a card switch

 

[bernse]

Originally posted by: dullard
We just talked about it this morning. They make ~$0.54 in store fees on your $1 coffee purchase. Then they give you 5 cents back. Net profit: $0.49 per coffee you buy.

Depends on the merchant contract. Most usually run on a straight % basis for transaction fee.. somwhere around 1-5%. How did you figure out the .54 for the example you gave? Does the contracts you've seen have like a .50c per+5% or something?

 

[dullard]

Originally posted by: Skoorb
So the consensus is that on people like me this program is a liability for them?

No, you are one of the credit card companies best customers (most profitable).

 

[dullard]

Originally posted by: bernse
Depends on the merchant contract. Most usually run on a straight % basis for transaction fee.. somwhere around 1-5%. How did you figure out the .54 for the example you gave? Does the contracts you've seen have like a .50c per+5% or something?

See my edit above. Sorry I don't have a good link. But https://www.paypal.com/cgi-bin/webscr?cmd=_display-receiving-fees-outside">here is a start </a> (scroll down to the comparison picture in the middle: Merchant Account + Gateway). Often you can get the lower transaction fees with a greater up-front payment for the machines and a greater monthly charge. Or for a nearly free credit card machine and a low monthly charge, expect to pay the full 4% + 50 cents.

 

[HardcoreRobot]

becuase not everyone only uses it at those locations

 

[StageLeft]

Originally posted by: dullard

Originally posted by: Skoorb
So the consensus is that on people like me this program is a liability for them?

No, you are one of the credit card companies best customers (most profitable).

Right, but note i use a DIFFERENT card for my coffee purchases At gas stations, drug stores, grocers, my average charge is around $30. 5% of that is $1.50, so even if they do charge $.50 to everyone they still need another few percent of the purchase even to break even.

 

[MattCo]

You would be amazed how much they make off of late fees alone. Also they get finance charges on most people. Thats why they drop the grace period by 5 days (25 day is usual) and the average idiot doesn't know because it is in really small print on page 15 of the pamphlet that they mail out. I pay off my cards every month but for every one of us there are 25 people who dont.

-MC

 

[erub]

well i use my citi dividend platinum select card for everything else as well..what is your reason for using a different card? 1% on everything else is still as good as you'll find without spending huge amounts and/or carrying a balance (for tiered cards)

what is the name of the chase card that gives 5% on gas, groceries, drug and home improvement? i have a chase perfectcard also that i used to use (3% on gas, 1% on everything else) and i liked it a lil more than citi because the cash back automatically was deducted each month..also their statements were much clearer as to what you were getting 3% vs. 1% back on..i wouldnt mind switching it to that new card though

 

[kranky]

I disagree with dullard and I think they absolutely lose money on skoorb and customers like him, who ONLY use their card on 5% rebate purchases. They aren't losing a fortune, but nonetheless...

The reason some CC issuers offer a loss leader on certain purchases is that most people won't carry multiple cards. If they can get you to use their card for things you buy frequently (gas, groceries, drug store), you might use it for everything.

 

[StageLeft]

well i use my citi dividend platinum select card for everything else as well..what is your reason for using a different card?

I dunno, I guess I just like the look of my MBNA card Plus the cash back on this card is limited to $300/year, which I can almost top out with my purchases at the three places.

 

[jaedaliu]

Originally posted by: erub
well i use my citi dividend platinum select card for everything else as well..what is your reason for using a different card? 1% on everything else is still as good as you'll find without spending huge amounts and/or carrying a balance (for tiered cards)

what is the name of the chase card that gives 5% on gas, groceries, drug and home improvement? i have a chase perfectcard also that i used to use (3% on gas, 1% on everything else) and i liked it a lil more than citi because the cash back automatically was deducted each month..also their statements were much clearer as to what you were getting 3% vs. 1% back on..i wouldnt mind switching it to that new card though

first part: I carry a discover 5% restaurant card. It reverses the reward scheme, and I'm now not eligible for the 5% summer amusment park promotion, but until i spend $6000 (or some ungodly high number if i'm just counting it for restaurant purchases) this year, I'm getting 5% every time i eat out (works from high end sushi places to Jack In The Box)

second part: I don't remember. I'm pretty sure you could just call chase and ask them. I saw the ad in this past Sunday's LA Times advertisement section, then handed the ad to my parents. I don't remember seeing 1% back on other purchases in the ad, but I wasn't looking for that; I already have a card that does that.

 

[RossMAN]

Originally posted by: Skoorb

Originally posted by: dullard

Originally posted by: Skoorb
So the consensus is that on people like me this program is a liability for them?

No, you are one of the credit card companies best customers (most profitable).

Right, but note i use a DIFFERENT card for my coffee purchases At gas stations, drug stores, grocers, my average charge is around $30. 5% of that is $1.50, so even if they do charge $.50 to everyone they still need another few percent of the purchase even to break even.

I hope you're joking.

 

[cubby1223]

They make all their money on the outstanding balances with 20% interest.

 

[Passions]

Link to this citicard?