What is my card worth to the card provider?

gropinginthedark

How much does a credit card company earn from each card?
They have 2 income streams, one from interest, the other from a percentage from the retailer from each transaction. The interest is visible on the statements, how much do they earn from the retailers?

I guess "what's the average they earn per card" is the simple question. The more specific question is: suppose I average £1000 CC spend per month and always pay it off how much am I worth to the CC provider.

The reason I ask is that knowing what your business is worth to them places you in a stronger position to negotiate.

An example: I used the Amex cashback card for a few months - until a bill didn't arrive ("lost in the post") so I missed a payment date and was "fined". I cut up the card and closed the account (it was rubbish anyway, a lot of retailers wouldn't accept it because Amex charges to the retailer are higher than other cards). I guess I could have attempted negotiation - "scrap the fine or I take my business elsewhere and Amex lose £xxx p.a. revenue."

Tixy

I'd have thought

I guess "what's the average they earn per card" is the simple question.

was an exceptionally difficult question to answer.

Typically its said that a merchant is charged between 1% and 2.5% of a transaction value for payment by credit card. How much of that makes it back to the individual credit card company I'm not sure is published. Some will go to VISA/Mastercard/AMEX, some will be charged for processing.

Then as you want to know the profit they make from your card, you'd need to factor in other costs that they have to pay out.
With it being a cashback card that will further reduce the profit they make from you.

You say you didn't try to negotiate - most people find that their credit card company will agree to refund a first time fee as a goodwill gesture - and remove the late payment marker on their credit file (by phoning up, stating that the statement didn't arrived, yes you should have realised you had a bill to pay anyway and chased up a statement, yes you'll consider setting up a direct debit so it doesn't happen in future or signing up for online statements etc).
I doubt the 'I'll take my business elsewhere' works all that well in the current market.

david39

Your value to the card issuer in regard to your purchases depends on which retailers you patronise and what trades they are in.

Large multiple retailers will pay less in fees for the same transaction than a small independent shop and high-margin trades such as jewellers and caterers will pay higher percentage charges than low-margin retailers such as £-shops and discount holiday agents.

Unless you pay off your card every month, it is unlikely that the value the card issuer gains from your purchases is more than a small fraction of what they earn from the interest you pay them.

meer53

gropinginthedark wrote: »

How much does a credit card company earn from each card?
They have 2 income streams, one from interest, the other from a percentage from the retailer from each transaction. The interest is visible on the statements, how much do they earn from the retailers?

I guess "what's the average they earn per card" is the simple question. The more specific question is: suppose I average £1000 CC spend per month and always pay it off how much am I worth to the CC provider.

The reason I ask is that knowing what your business is worth to them places you in a stronger position to negotiate.

An example: I used the Amex cashback card for a few months - until a bill didn't arrive ("lost in the post") so I missed a payment date and was "fined". I cut up the card and closed the account (it was rubbish anyway, a lot of retailers wouldn't accept it because Amex charges to the retailer are higher than other cards). I guess I could have attempted negotiation - "scrap the fine or I take my business elsewhere and Amex lose £xxx p.a. revenue."

In my experience a polite request for a refund works best. If you haven't had a refund before, the answer is usually always yes.

Unless you're putting many tens of thousands of pounds worth of transactions through your account, i don't think they'll really be bothered if you say you'll take your business elsewhere.

lisyloo

i don't think they'll really be bothered if you say you'll take your business elsewhere.

I don't think that's entirely true.
Everytime I close a card I usually get put through to the "retentions" department who seem keen to keep my business. Sometimes they make offers. I usually have to got through a few minutes of this before they finally agree to close.
However I do agree that they and not you are in the driving seat of the negotiation.

gropinginthedark

Answering my own question - kind of!

On reflection... I found that retailers pay in the range 1-5%. I guess the 5% is expensive cards like Amex or retailers considered high risk and 1% is the big ones with negotiating muscle or maybe those with a high average spend per transaction. Santander offer a card with 3% cashback on motor fuel which may indicate that the fee they charge filling stations is greater than 3%.

Let's say the average is 2% then on a spend of £1k/month the annual income (not profit) from a customer who always pays the full amount on time (so no interest element) is £240. Small beer compared with the massive interest rate they charge if you don't pay off monthly of course.

£1k per month seems to be a lot more than average CC spend. The imprecise info I could find suggests there are 30M cards in UK and total annual spend is £60Bn making £2k p.a. per card - many people have a primary card and at least one "spare" so maybe the average per *active* card is £4k p.a. Then looking at that £60Bn, if the card companies are making 2% on sales that's around £1.2Bn.
I had a figure for card profitability about 15 years ago, that was £30 p.a. per card, allowing for inflation that would probably be about £45 now - so how much effort is justified to make £45 p.a. profit? Well £45 from each of 30M cards comes to a worthwhile £1.35Bn. but they can afford to disregard individuals, especially those who avoid paying interest.

opinions4u

Margins were much wider 15 years ago.

No 0% deals.

Smaller write offs for bad debt.

david39

The agreement as to what charge is made to the retailer for processing is not done by the individual credit card companies - it is done by the intermediary processing company that acts between the retailer and the card issuer.

The main companies operating in the processing businesses are the banks themselves, but it is they who negotiate the charges with the retailer, not each individual card issuer.

Also, remember that the cards being processed here are not just the well known bank cards but store cards and cards issued by fuel companies to fleet operators for drawing fuel from petrol stations - like BP, who have a massive card operation; ever wondered why BP stations always have busy forecourts despite always displaying the most expensive prices?

simongregson

looking at the cashback rate is probably not a good guide. Rates that large chain petrol stations like BP pay will be very low. Card companies offer higher cashback on supermarket and petrol purchases as they want to be your default card to pay (i.e. front card in the wallet) rather than you leaving it at home and only taking it with you when you make a large purchase - the thinking being you might make a larger spontaneous purchase that you would not have otherwise made.

So a lot of it is about marketing! The real money for the card companies is in charging interest - that's why AMEX charge an annual fee on their chargecards that have to be paid off each month.

InsideInsurance

gropinginthedark wrote: »

Answering my own question - kind of!

On reflection... I found that retailers pay in the range 1-5%. I guess the 5% is expensive cards like Amex or retailers considered high risk and 1% is the big ones with negotiating muscle or maybe those with a high average spend per transaction. Santander offer a card with 3% cashback on motor fuel which may indicate that the fee they charge filling stations is greater than 3%.

Let's say the average is 2% then on a spend of £1k/month the annual income (not profit) from a customer who always pays the full amount on time (so no interest element) is £240. Small beer compared with the massive interest rate they charge if you don't pay off monthly of course.

For a start large retailers can get well below 1% transaction fees. A former client was paying 0.6% for its internet business (which is typically higher than a in person transaction).

Secondly the transaction fees can be split between 3 parties, the gateway, the network and the bank.

The per customer profit is relatively small, Barclaycard for example in 2011 made £541m profit from 23.5m customers but those will include corporate customers with a thousand plus cards so if you were looking at a per card profit it would be much lower than the £23 per customer

nctmum

Just to add my twopenneth in - if you take the interchange as the only income you are generating, if you pay in full every month, then pure profit taking into account expenses etc, you are probably making them less than £10 a month - £1,000 a month is probably only average for a "pay in full" customer. So not a massive amount. But they need customers like you who are going to go "bad" - so its always worth negotiating before you close the card.