Anybody have knowledge of the credit card industry re: how / where money is made...

djm1972

Following a couple of recent threads in which it seems there has been something of an abrupt turning against non-borrowing credit card customers; I'm curious to know if anybody can shed any light on how / where money is made within the credit card system.

Let's take the 3 primary credit card "brands";

MasterCard
Visa
American Express

Each of these brands has hundreds of "issuing banks"; who issue cards that can be accepted via the networks operated by those brands (many banks offering cards across all brands; if not a single linked-account with cards for different brands - for example the Lloyds Duo, which is a single account with both MasterCard and American Express cards)

Of those issuing banks, many of them offer "Merchant Accounts" to business customers, enabling them to accept payment by cards bearing those brands.

...and for handling those payments via your merchant account there is of course a fee; which is highly negotiable depending on your transaction volume - and for large retailers I understand to be "total" rather than per-transaction (which is why Sainsbury's and Tesco will happily take a credit card for a 50p sale, where as your local corner shop will not).

Then of course, there is interest; charged by the issuing banks to customers who carry a balance on their cards...

So disregarding interest; is the situation such that none of the issuing banks - many of whom offer merchant services - are able to make any money out of customers who do not carry a balance?

Moggles_2

Disregarding interest; is the situation such that none of the issuing banks - many of whom offer merchant services - are able to make any money out of customers who do not carry a balance?

Personally, I doubt this. A credit card company's core business starts with the retail transactions made by their customers.

Obviously, if clients don't settle up in full, the interest charged is a nice little earner. It's up to us not to line their pockets.

CannyJock

Amex in addition to charging much highest merchant fees, 5% being an example, delay payment to the retailer for up to 60 days, so they're effectively banking the money over that period.

Smaller retailers also pay a fee to their banks for leasing PDQ machines, in addition to the myriad of other bank charges for commercial banking.