How do Credit Card Companies make money?

[edro]

For those of us to spend everything on credit cards, and pay balance in full each month...
...how do the banks make money off of this segment?

They are providing a huge service, which I assume costs a lot of money to do... but get nothing in return.
I must be missing something.

I know a huge population carries balances, so they collect tons of interest and fees...
I guess I am underestimating this population.

Do they benefit from people who pay off each month?
Is there some sort of kickback from vendors, credit card processing, etc?

 

[NikolaeVarius]

They charge merchants a percentage of the sale.

 

[silicon]

for every 1 person who pays the amount each month you have 100's who do not. the credit card business is lucrative and they count on people not paying the total every month.

 

[silicon]

They charge merchants a percentage of the sale.

and this.

 

[TheSlamma]

They charge the places you use your credit card a percentage fee.

That is why there are a lot of small business's that are now only accepting cash. Sometimes when you buy a vacation package they will have a CC price and a Check/Cash price and it is lower. Some airlines have gone under due to credit card fees breaking their back.

 

[Svnla]

CC companies make money from:

1. $ (from interest) from million and million of card users carrying balances. I read somewhere that the average US family is carrying about $7,500 USD (average) on their credit cards.
2. Fees from merchants to use CC.
3. Annual fees from CC users. For example, American Express Platinum card is $450/year. Other cards are $95/month or so. Not all cards have annual fee, of course. Cards from BoA, Citi, Capital One do not have annual fee for me.

 

[silicon]

CC companies make money from:

1. $ (from interest) from million and million of card users carrying balances. I read somewhere that the average US family is carrying about $7,500 USD (average) on their credit cards.
2. Fees from merchants to use CC.
3. Annual fees from CC users.

i would never pay an annual fee for a credit card. they make way too much money to justify an annual fee.

 

[Svnla]

i would never pay an annual fee for a credit card. they make way too much money to justify an annual fee.

Not if you have good benefits from said card. For example, I get $200 travel credit per year from AE Platinum then $100 credit for TSA Global Entry, then free entry to nice airport lounges, and other travel benefits. Also, I earned 100K MR points when I opened the AE Platinum card and sold them for over $1K, and on and on.

Of course, if you do not travel as much as I do, those benefits are not worth it to you.

 

[CraKaJaX]

CC companies make money from:

1. $ (from interest) from million and million of card users carrying balances. I read somewhere that the average US family is carrying about $7,500 USD (average) on their credit cards.
2. Fees from merchants to use CC.
3. Annual fees from CC users. For example, American Express Platinum card is $450/year. Other cards are $95/month or so. Not all cards have annual fee, of course.

Holy shit? I feel shitty when I carry over $100 into the next month.

 

[jpiniero]

Yeah, the balance interest is mainly to cover the deadbeats. The merchant fees is where they generate the profits.

 

[BurnItDwn]

I am a person who never carries a balance, pays off in full every month. Have been that since I was 18. However, I spent a few years with a pretty big balance. It took a long time to sell my old place after I bought my new place, and my woman at the time was supposedly going to help cover bills.

Anyhow, that was a lie, she claimed she whould help contribute to bills, but in reality, she simply spent my money and didnt help with shit. So, I depleted 100% of my savings, and then over the course of about 6 months, I managed to get my CC balance up over 10K and I finally sold my old place.

Anyhow, after I dumped her, I was able to pay off my CC balance within about 2 years. Since then, (about 8 years later), I've finally finished paying off the 2nd mortgage that I got when I bought the house.

Next time, I will wait until AFTER I sell my old place before I buy the new place.


Anyhow, during that time, I probably paid 3000 or 4000 in interest to BOA for the credit card.

 

[Stopsignhank]

A good friend of mine from college was proud of the fact that they paid more than the monthly minimum on their credit card. Then there was the time his wife said he went into a store and came out carrying a pair of speakers. He said, "hey there was room on the card."

I personally have not paid interest card interest in decades.

 

[Train]

for every 1 person who pays the amount each month you have 100's who do not. the credit card business is lucrative and they count on people not paying the total every month.

I highly doubt the ration of non-interest payers to interest payers is 1 to 100

 

[Svnla]

Holy shit? I feel shitty when I carry over $100 into the next month.

The surge has left the average household credit card balance at almost $7,200,

http://www.cbsnews.com/news/americas-skyrocketing-credit-card-debt/


Now you multiply that average amount x million and million of CC users => $$$$$$ for CC companies.

 

[NikolaeVarius]

It's insane to me that people carry balances on their CC.

 

[overst33r]

It's insane to me that people carry balances on their CC.

+1

 

[KlokWyze]

Not to mention that if they have a customer stop paying, they can just write it all off as a loss. Also, they sell the debt to debt collectors so they just wash their hands. They have multiple layers of protection written into the law of the land.

It's insane to me that people carry balances on their CC.

I can think of far more insane things that people in general do. You must be shocked, repeatedly, if you step foot out of your house.

 

[mikeymikec]

They may also sell marketable data.

 

[s0me0nesmind1]

They charge merchants a percentage of the sale.

Correct. Around 2% usually, depending on if they make a deal with the credit card or not. A common example is Costco, which only accepts AMEX (soon to change). Obviously they have a contract that gives AMEX exclusive use there, but under the ultimate principle that Costco pays them less in fees.



Another example is... Not everyone pays off their bills. Just google US Credit Card debt and you will see how much Americans really spend, and how big the average debt load is. It's scary how much they pay. Some just see a $5,000 credit card bill and a $35 minimum fee and just pay that minimum fee forever.

They may also sell marketable data.

This as well. Your spending habits. Your address. Your contact information, etc... All of that is golden egg marketing material.

 

[s0me0nesmind1]

Not to mention that if they have a customer stop paying, they can just write it all off as a loss. Also, they sell the debt to debt collectors so they just wash their hands. They have multiple layers of protection written into the law of the land.



I can think of far more insane things that people in general do. You must be shocked, repeatedly, if you step foot out of your house.

My wife's parents abused credit cards and were worse off than simply selling it to debt collectors... The credit card companies took them to court. They didn't show... so with a victory they started garnishing their wages. Not so smart....

 

[s0me0nesmind1]

Not if you have good benefits from said card. For example, I get $200 travel credit per year from AE Platinum then $100 credit for TSA Global Entry, then free entry to nice airport lounges, and other travel benefits. Also, I earned 100K MR points when I opened the AE Platinum card and sold them for over $1K, and on and on.

Of course, if you do not travel as much as I do, those benefits are not worth it to you.

Heh, I just signed up for that too... I'm only keeping it for the first year, but holy shit I never imagined $450 annual fee would be useful.

$200 travel credit (x2, one for end of 2014, one for 2015) = $400
$100 Global Entry Credit
Tons of Upgrades - Hertz, Starwood Preferred Gold, Hilton hotel status upgrade
Airport clubs free entry
100k AMEX points = ~$1000.

Yeah, I would say that was $450 well spent.

 

[AznAnarchy99]

Heh, I just signed up for that too... I'm only keeping it for the first year, but holy shit I never imagined $450 annual fee would be useful.

$200 travel credit (x2, one for end of 2014, one for 2015) = $400
$100 Global Entry Credit
Tons of Upgrades - Hertz, Starwood Preferred Gold, Hilton hotel status upgrade
Airport clubs free entry
100k AMEX points = ~$1000.

Yeah, I would say that was $450 well spent.

Yup I got the card too. If you use the Amex points to transfer to flight partners you can get even more than $1000. Typically it's around 2.5 cents per point bringing it around $2500.

I just used the Platinum Concierge to book a room at the Wynn Las Vegas this weekend. Got free room upgrade, $100 spa credit, $40 breakfast each day, 4pm late check out, early check in, and show discounts.

Also I like how some people treat you differently for using a Platinum card lol.

I will probably keeping my Platinum card or getting some other Premium card such as a Citi Prestige.

 

[s0me0nesmind1]

Yup I got the card too. If you use the Amex points to transfer to flight partners you can get even more than $1000. Typically it's around 2.5 cents per point bringing it around $2500.

I just used the Platinum Concierge to book a room at the Wynn Las Vegas this weekend. Got free room upgrade, $100 spa credit, $40 breakfast each day, 4pm late check out, early check in, and show discounts.

Also I like how some people treat you differently for using a Platinum card lol.

I will probably keeping my Platinum card or getting some other Premium card such as a Citi Prestige.

Very cool - How is that Concierge service? I ask because usually I don't see any benefit of using such services, because the prices are already/usually jacked up.

I'm usually a cheap ass when it comes to spending money on hotels. I try to keep it below $100/night with a 2.5 or higher star level.


But yeah, I doubt I can justify it past Year 1. I don't travel enough to find the airport lounges THAT worthwhile. Also, after the first year you only get the $200 credit once per year, and of course you won't be able to use the Global Re-entry again since it's good for 5 years.

That, along with no sign-up bonus of course.

 

[CraKaJaX]

http://www.cbsnews.com/news/americas-skyrocketing-credit-card-debt/


Now you multiply that average amount x million and million of CC users => $$$$$$ for CC companies.

That is absolutely absurd. And to think what % of these people still have student loans just sucking the life out of them with interest as well. Good lord. I feel better about myself.

 

[AznAnarchy99]

Very cool - How is that Concierge service? I ask because usually I don't see any benefit of using such services, because the prices are already/usually jacked up.

First time using it. I checked prices other places first and it was around the same cost. It was a very last minute booking as I was already on my way to Vegas as I called but they made it very easy and took care of everything over the phone. I know that even if you're planing to do a big trip, they will actually work with you to plan your entire itinerary.