Does paying for your credit card in FULL every month make you have valued customer?

CIMA_LOVER

Does paying for your credit card in FULL every month make you have valued customer?

Compared to some paying interest or mininum payment?? :money:

Caped_Avenger

Depends on the credit card provider. It's more the amount that you spend on the card that they will make decisions.

Obviously, if you're paying interest, you're making the provider money on the interest.

As long as you're making at least the minimum payment every month without fail, the card provider will be happy with that, and probably base their evaluation of how valued a customer you are on the amount you spend on the card in a monthly basis.

Why do you ask?

CIMA_LOVER

BARCLAYCRAP!

What if you spend £2000 every month (in purchases) and pay in full every month.

Just interested really, I mean if I dont pay interest, hows are they making money out of me?

Caped_Avenger

They make money on the purchases that you make. I don't know the details of it, but they definitely do.

I would say that they would (well, should) view you as a pretty medium-to-high value customer. £2000 per month is pretty healthy, and they see you paying it off every month. They know they're unlikely to make any interest out of you, but then again, they know you're not likely to default, and become a bad debt.

ManAtHome

They charge the retailer a percentage. Some places started printng this on their receipts - something like "I acknowledge that a Visa processing fee of 2.75% has been charged on this transaction" (from memory). Retailers were arguing that this bit of the payment shouldn't attract VAT. Dunno if this has been settled - last I heard the Customs peeps were winning...

Anyway, on your £2k they'd be making around £55 - obviously some of this is soaked up in admin. I believe the percentage varies between shops - high-volume retailers probably get a better deal, so the 2.75% may be low rather than average.

Galstonian

The amount the retailers reserve for fees does not reflect actual merchant fees, thats just an accountancy trick to reduce VAT payable by them. I saw an extract of a report in a newspaper last year that stated that the average Amex fee was just over 2% while Visa and Mastercard was just over 1.5% (this was in the US, I think Amex may even charge more outside the US)

Rafter

The average amount the bank actually gets is about 1% for Visa and Mastercard and about 2% for American Express (which is why retailers don't like American Express and why American Express can afford to give better cashback).

The retailer pays more than 1% and the difference covers the cost of the terminals and actually processing the transaction. Small retailers pay more partly due to their small bargaining power and partly because there is more risk they will go bust and the card company will have to compensate customers who lost money.

1% isn't really enough to cover the cost of the interest free payment, processing, postage of statements, cost of cards and fraud etc.

I would say very few full paying customers, particularly those who never use the card overseas or who never incur a penalty fee or pay any interest are 'valued'

Think about it. If you spend £1000 a month on the card and pay in full that is effectively a £1000 interest free loan. In return you get a card that enables you to pay for goods and services almost anywhere, guarantees you in the event a retailer goes bust and on which you are not liable for fraud.

The retailer pays a bit for sure, but probably less than the cost and fraud and shoplifting costs of cheques or cash.

If you have a card with cashback too the economics are even worse.

Full payers are effectively being subsidised by people who do borrow.

If you are spending a lot, say £2000 a month, the card company gets about £20 a month in fees. At 4.75% the £2000 costs them £8 a month in interest. Say statements and payment processing cost a couple of £ then the bank is making £10 a month. If you are getting 1% cashback though, the bank is loosing £10. But even full paying customers occassionally lose their jobs or fall ill, so the bank has to pick up those loses too.

Now compare that to someone carrying forward a £2000 balance and putting £2000 on the card each month (paying off £2000 too) and paying 15% APR. They get no interest free period on purchases because they carry forward a balance. Let's say they are a bit forgetful and pay late 2-3 times a year incurring a £25 fee each time. The customer also has payment protection insurance costing 79p per £100 of balance.

This customer also earns the bank £20 in retailer fees. The bank gets £50 a month in interest and the bank pays about £17 to borrow the money. In addition they get fee income of £6 a month. Payment protection earns the bank £31 a month.

So this customer earns the bank £90 a month or 9 times as much.

This is why MBNA are trying to introduce fees, cashback is being withdrawn etc.

So CIMA, they really don't make any money out of you, they just hope they get enough customers who do borrow so that overall the economics work in their favour.

R.