Where do credit cards companies make most of their money?

[Skeeedunt]

I assume it's mostly from interest, but don't they also take a percentage cut of sales? Or is this just a trivial amount?

It seems like there are plenty of people (maybe this is an overstatement?) that don't carry a balance, but still get all the bonus points/rewards/etc. Are they just a cost of doing business, made up for by everyone with high balances and high interest rates? Or do they still make the cc companies more money than they end up costing them?

 

[jme5343]

I thought it was 3% of sales. I'd say they still make more from those paying interest on high revolving balances.

Yep, that's how they can give awards to the few that pay like they're supposed to. I saw a link in someone elses thread where some congressman suggested that those who pay their card off every month should get cards with annual fees to help pay for their card usage. His theory is that the CC company will then be able to charge other people lower rates. LOL. What an idiot.

 

[SLU MD]

they make most of their money from businesses that allow the use of their cards, not from interest. Every time you use your card, they charge 2-4% of the total payment to the business. Thats amazing. They freaking mint money

 

[mjrpes3]

Originally posted by: jmebonner
I saw a link in someone elses thread where some congressman suggested that those who pay their card off every month should get cards with annual fees to help pay for their card usage.

Ha... way to solve a problem by: (a) not solving it and (b) taxing those who aren't part of it.

 

[bobdelt]

Mostly through the charges. Remember they may charge a high interest rate but people also default.

I wonder if they lose or make money on the float involved (between you paying them, and them paying the business)

 

[Skeeedunt]

Hmm... interesting stuff. 2-4% up front ain't bad, but 10-20%/month for who knows how long seems like a lot more Guess it just depends how many people carry a balance.

 

[JS80]

The 2-3% merchant fee is split like 3-4 ways (e.g. Verisign, Visa, Merchant Bank, CC company). The bulk of the revenue is from interest.

 

[chimmytime]

I thought it was through the float. The money that they hold on to between transactions they put in some other kind of money market, hold it a few days there, then finally transfer it over to the businesses. the fees and interests are just the icing on the cake.

 

[Vic]

Through transaction fees and float, they basically have a license to print money. The interest is just to cover the costs of servicing (collect the monthly payments) and to offset the default risk.

 

[Skeeedunt]

I'm not sure if I understand the float part... doesn't that benefit the consumer? I mean, the merchant gets paid way before I send any money to the credit card company, right? So during that period, isn't the money loaned out at the expense of the credit card company? What am I missing here? Bear with me, I'm new at this

 

[zerocool1]

the issuers make a percent from interest.
the networks like visa make money off of interchange rates. So they charge for the transaction

 

[DaWhim]

interest

 

[Atlantean]

Mastercard and Visa make money from sales where the card is used, the credit card companies you would deal with make their money from interest and fees.

 

[akshatp]

http://en.wikipedia.org/wiki/Credit_card

 

[amdforever2]

The issuer, network, and merchant bank share interchange income.

There's of course interest.

Pay by phone fees, late fees, overlimit fees, foreign currency conversion fees, and writing a bad check to them fees.

Credit monitoring services, debt cancellation premiums, other marketing promotions, balance transfer fees.


The list goes on.

Read your card agreements.

 

[bobdelt]

Originally posted by: Skeeedunt
I'm not sure if I understand the float part... doesn't that benefit the consumer? I mean, the merchant gets paid way before I send any money to the credit card company, right? So during that period, isn't the money loaned out at the expense of the credit card company? What am I missing here? Bear with me, I'm new at this

I think float would work against credit card companies in this case. Since they have to pay the merchants before some of their customers pay their bill.

 

[RossMAN]

Interest and fees.

Payment late 1 day? BAM!

Over the limit? BAM!

You get the idea.

 

[spidey07]

Originally posted by: Vic
Through transaction fees and float, they basically have a license to print money. The interest is just to cover the costs of servicing (collect the monthly payments) and to offset the default risk.

you....you stop with your truth.

/thread

 

[Darthvoy]

i read somewhere that they make the most from fees than from the interest. I think it was was a pbs special "frontline"

 

[warbean]

If you mean the high interest on credit cards, that is incorrect.

They earn most of their money, as previously described, by a percentage of credit card sales charged directly to the business.

Then they INVEST that money and earn the INTEREST from those investments.

Fees and credit card interest is a VERY small portion of their earnings. That is the truth.

 

[homercles337]

Originally posted by: RossMAN
Interest and fees.

Payment late 1 day? BAM!

Over the limit? BAM!

You get the idea.

Exactly. Only they get more from the latter, not former.

 

[homercles337]

Originally posted by: warbean
If you mean the high interest on credit cards, that is incorrect.

They earn most of their money, as previously described, by a percentage of credit card sales charged directly to the business.

Then they INVEST that money and earn the INTEREST from those investments.

Fees and credit card interest is a VERY small portion of their earnings. That is the truth.

Wrong. You may want to know the truth before posting misinformation.

 

[BeauJangles]

Originally posted by: warbean
If you mean the high interest on credit cards, that is incorrect.

They earn most of their money, as previously described, by a percentage of credit card sales charged directly to the business.

Then they INVEST that money and earn the INTEREST from those investments.

Fees and credit card interest is a VERY small portion of their earnings. That is the truth.

Other way around. Interest is a huge part of their earnings.

 

[Liberator21]

Well I know my father had 3 credit cards, one Mastercard, one Visa, and one Discover. He fell on hard times and had to default, and only Discover would make any substantial attempt to work with him. His visa was close to the limit of 3k. Once he didn't pay (1 time!), it gave him a late fee. That late fee caused his limit to be exceeded- Another fee. That fee was also another 'purchase' that exceeded his limit yet again. Those fees, along with compounding-daily interest and finance charges, turned his 3,000 bill into over 11,000(!) in under one month! Everybody thought this was some sort of mistake, but his Visa company (Capital One I believe) still insisted he pay it, so he had to file bankruptcy.




The moral of the story: What's in your wallet?

 

[BEL6772]

My wife worked in collections for Discover Card several years ago. The center she worked at housed collections, customer service, and payment processing. She told me after one of her department meetings that the cost of operating the entire center was covered by late fees.