Do banks make a profit from debit card transactions?

Shakin_Steve

I've just opened an account with Tesco and I know banks have a habit of closing ones that cost them money/don't make them money. I don't really want to mess with my direct debits but would be happy to make, say, £3-400 worth of debit card transactions each month. Should that keep them happy?
I'll build up to £3000 to get the 3%, and then top up with a few hundred each month to use for shopping.

glentoran99

I've never heard of a bank closing someone's account because it doesn't make them money

Shakin_Steve

There was a thread not long ago about an account being suddenly closed. Others said they'd had the same in the past. A couple of members said it could be for those reasons. I'll try and find it.

bigadaj

Shakin_Steve wrote: »

There was a thread not long ago about an account being suddenly closed. Others said they'd had the same in the past. A couple of members said it could be for those reasons. I'll try and find it.

People have suggested this but on further scrutiny there generally seem to be other reasons. These might be foreign transactions, large sums being processed through with banks suspecting money laundering, business user, gambling etc, or in some circumstances things like id checks and proof of address.

I certainly hope that none of my various providers make any money out of me, and no issues!

johnac

The bank will have made a commercial decision that it's worth paying you benefits like interest for the opportunity to sell you something else now they've got their foot in your door. The benefits to them for the other products will out way the cost of giving you a benefit when looked at across their customer base accepting they won't sell something else to everyone. So I wouldn't bother unless you get something.. in Tesco case extra club card points.

I believe they do make money from card transactions as the merchants pay a fee which the bank takes a cut of.. I listened to an interview with the head of a new bank (starling?) who said their intention was to use card transaction fees as a revenue stream.

Shakin_Steve

johnac wrote: »

The bank will have made a commercial decision that it's worth paying you benefits like interest for the opportunity to sell you something else now they've got their foot in your door. The benefits to them for the other products will out way the cost of giving you a benefit when looked at across their customer base accepting they won't sell something else to everyone. So I wouldn't bother unless you get something.. in Tesco case extra club card points.

I believe they do make money from card transactions as the merchants pay a fee which the bank takes a cut of.. I listened to an interview with the head of a new bank (starling?) who said their intention was to use card transaction fees as a revenue stream.

Extra club card points would be great.....if I ever intended to buy the overpriced stuff they sell in their supermarkets. But I don't.

johnac

Shakin_Steve wrote: »

Extra club card points would be great.....if I ever intended to buy the overpriced stuff they sell in their supermarkets. But I don't.

And the extra points you get are a pittance so don't earn them any more than you need.

pinkdalek

Banks will no doubt make some kind of revenue from debit card payments, the majority being from the merchant with whom you pay with your card.

Banks mainly make profit from debit card customers with either their "add ons" e.g. packaged current accounts or other products they can offer you such as credit cards/loans/insurances/mortgage deals.

People do shop around, but most will go to their own bank also to see if they can offer them that product.

dlk

A bank won't close your account just because it's unprofitable. They will however potentially close it if it goes dormant for a long period of time. Dormancy isn't a month or two, you're usually talking about at least 2 years of no credits to the account at all.

takman

I've had my tesco accounts for over a year now with them paying me 3% interest on £6000. I also have four of their online saver accounts with a good amount of direct debits feeding them and a credit card that i have just paid off but had an interest free balance on it that i transferred from another card for no fee.

I have also only used my debit card on the account twice. So i am definitely one of the least profitable customers (excluding people who borrow money and don't pay it back). But they haven't closed my acccounts!, so if they were going to do it for unprofitable customers i would be high on the list.

Anthorn

Shakin_Steve wrote: »

I've just opened an account with Tesco and I know banks have a habit of closing ones that cost them money/don't make them money. I don't really want to mess with my direct debits but would be happy to make, say, £3-400 worth of debit card transactions each month. Should that keep them happy?
I'll build up to £3000 to get the 3%, and then top up with a few hundred each month to use for shopping.

Very much a fallacy that banks and credit card companies make a profit from card transactions: Banks make a profit on free current accounts by loaning out balances and by up-selling and cross-selling. Credit card companies make their profit from interest on balances. Card transactions cover their costs and nothing more.

Try googling "How do banks generate money" to see what banks do with customers' balances.

I think that, notwithstanding banks' errors, those who have had their bank accounts closed have not operated their accounts in accordance with the T&Cs or they have fallen foul of the banks' unwritten rules and expectations: For example a perpetual overdraft balance which is never reduced or no transactions over a period making the account dormant or cultivating suspicions of fraud.