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

[akubi]

the citi card has a 300 dollar per year cashback limit so it's not that big a deal after you weigh in the "potential" gain from high % interest

 

[StageLeft]

Originally posted by: 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.

No, ma'am, I don't joke! I have two cards I use. The primary card for ALL non-grocery/gas/drug purchases, and then the card for those. I think you thought I meant I have acard I only use for coffee though, which ain't the case

 

[StageLeft]

Originally posted by: Passions
Link to this citicard?

citicards.com and it's called the platinum dividend or someting

 

[RossMAN]

Originally posted by: Passions
Link to this citicard?

http://www.citibank.com/us/cards/cardserv/divplat/index.jsp

 

[Hammer]

just wait til they day they "misplace" your payment. then they will pwn you!

 

[lokiju]

Originally posted by: Skoorb

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.

Thats to high of an interest for me.

 

[Insomniak]

Originally posted by: jEct2
economy of scope.

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

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

Truth in forum posting.

 

[RossMAN]

Originally posted by: Hammer
just wait til they day they "misplace" your payment. then they will pwn you!

I'm not sure how they'll ever "misplace your payment" since mine are done electronically via the CitiCards.com web site.

If you submit your payment before 1PM ET it's applied the same day for free. They have never lost any of payments whether they're mailed or submitted online.

 

[iwantanewcomputer]

Originally posted by: Skoorb

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

thanks RossMAN

 

[AgaBoogaBoo]

They probably do take a loss on some of the wiser/more careful users who always pay in full on time, however because some many don't, they turn a greater profit in the end.

 

[Squisher]

You might be right about building up a loyalty. I've gone through many cards chasing deals like this only to have them drop their offers in 6 months or a year.

For now I use citibank until I reach the $300 limit then move on to the chase perfect card after that it's the AMEX green cashback. I even used that one up last year ($50K in charges).

 

[Zee]

aside from interest from people with balances, merchants have to pay a percentage on every sale.

Long story short, start a credit card company if you want to be rich.

 

[Kadarin]

Originally posted by: Insomniak

Originally posted by: jEct2
economy of scope.

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

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

Truth in forum posting.

Yup... Make a late payment or go a few cents over your credit limit, and just watch what happens. Also, they will periodically send letters with "important changes to your account"..

All credit card companies are evil on a scale that Microsoft can only dream of.

 

[StageLeft]

Originally posted by: blazert40

Originally posted by: Skoorb

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.

Thats to high of an interest for me.

That's becuase you keep a balance on your CC.

 

[qaa541]

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.

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.

Dullard's right! Transaction fees are an income stream for the CC issuers and then the interest payments and the like form up the rest. With the average cc debt of customers hovering around $4000, its easy that they can make the money back in interest payments. Some people profit from the system, and the others who carry a balance on a non 0% interest offer lose. Late fees and other fees make up the rest of their income stream.


Afterall, if this practice wasn't profitable, they would never do it.

 

[Chunkee]

Originally posted by: jEct2
economy of scope.

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

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

zactly, its all a "good risk throw of dice", they are counting on the others

jC

 

[shilala]

Stupid people=Good for Skoorb

 

[mugs]

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.

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.

I don't think stores pay $.50 per transaction... I've seen online merchant accounts that have a flat per transaction fee + a percentage, but I don't think b&m stores have to pay a flat fee. If they did, there's no way convenience stores and fast food restaurants would accept credit cards.

And the answer to Skoorb's question is pretty obvious... most people don't use their credit card like Skoorb. I don't. I use my Citi card for everything, there's no reason to split it up because I've not reached the $300 limit per year and my other credit cards only offer 1% back. Except my American express has 2 or 3% for restaurants and travelling, BLAST I can't believe I forgot to put my plain tickets on that card. :|

 

[AgaBoogaBoo]

Originally posted by: mugs

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.

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.

I don't think stores pay $.50 per transaction... I've seen online merchant accounts that have a flat per transaction fee + a percentage, but I don't think b&m stores have to pay a flat fee. If they did, there's no way convenience stores and fast food restaurants would accept credit cards.

And the answer to Skoorb's question is pretty obvious... most people don't use their credit card like Skoorb. I don't. I use my Citi card for everything, there's no reason to split it up because I've not reached the $300 limit per year and my other credit cards only offer 1% back. Except my American express has 2 or 3% for restaurants and travelling, BLAST I can't believe I forgot to put my plain tickets on that card. :|

Yeah, it's definitely not that high for sure, I'm actually applying for a merchants account and will have much lower rates myself. I'm guessing they pay a small percentage because even a 10 cent transaction fee in addition to a percentage would be quite a bit for small purchases.

 

[Phoenix86]

Originally posted by: jEct2
economy of scope.

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

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

Well put. Companies can create loss leaders and make up for it with other products.

 

[BigJ]

Hmm, Citibank just sent me a letter in the mail offering me a 6.99% APR on all my new purchases for 6 months. This is on the Dividend Platinum Select card I already have. All I have to do to get that rate is call.

 

[kranky]

My reasoning why Citibank loses money on customers like skoorb:

1. Merchants pay less 5% in transaction fees, yet Citibank is returning 5% to the customer. (remember, we're talking only about the 5% rebate-eligible transactions)
2. The per-transaction fee, even if it's 50 cents, won't make up the difference.

Let's say skoorb buys $10 of groceries. Let's say the merchant pays 50 cents plus 2% so Citibank collects 70 cents. The rebate to skoorb from Citibank is 50 cents. That leaves 20 cents, out of which Citibank still must cover their own costs. I wouldn't be surprised if it costs a CC issuer 20 cents more or less to process a transaction. It probably costs them another dollar every month just to prepare and send out the statement.

Of course they are making money in the big picture for reasons already mentioned - people who carry balances, people who use the card for purchases that don't earn 5%, people who pay late fees, etc. - but for the skoorbs of the world, they aren't making money.

AAA (MBNA) couldn't even continue offering 5% on gasoline ONLY, and I'm sure Citibank will eventually pull the plug on this as well. But I know I'm enjoying it while it lasts.

 

[mrchan]

I dont know if other CC's do this too, I am pretty sure they don't, but I have the same Citibank card with 5% back, and if there is any month where you don't pay off the ENTIRE balance, they charge you interest on the ENTIRE balance for the month.

Ex: First month with this card, i made $1009 in purchases. The first time you use their pay online system, you a LIMITED to a $1000 payment, and only ONE payment for the first month. I figure they will charge me the 10% APR on $9, the remaining balance, which should amount to less than $1 right? No Biggie. Nope. Charged me interest on the entire $1009, something like $9 charged to my account. A quick call to citibank got the charge refunded, but it is something to watch out for.

 

[dullard]

Originally posted by: mugs
I don't think stores pay $.50 per transaction... I've seen online merchant accounts that have a flat per transaction fee + a percentage, but I don't think b&m stores have to pay a flat fee. If they did, there's no way convenience stores and fast food restaurants would accept credit cards.

My wife went through it all with her business. So I give personal experience and I provided a link. That was the ATOT standard for proof up to now. I guess not anymore.

I've posted this before, but it is relavant to this discussion. How much do CC companies make from store fees vs how much do they make from giving high interest loans to the customers. I use Discover since the data is easilly linked. Other CC companes are bigger, but the trend is the same.

In 2003 (the last full year reported at the time I first made this post), Discover made $3.02 billion in revenue from this store charge. Subtract off cash back and other incentives and Discover made $1.01 billion in profit from that store charge alone. For interest and fees, Discover had $1.86 billion in revenues (this is unsurprizingly less than the revenue from the ~4% charge). However, interest and fees ended with a $22 million LOSS after expenses and writeoffs for bad debt). Net income after tax: $636 million. source, page 6

 

[Baked]

Because most people pay off just the minimum each month. CC companies make money on the 25%+ APR.