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I wonder... does my credit card bank hate me?

Odd sounding question but hear me out. I have an AMEX, have had for nearly 4 years. I've earned cashback from it and have never paid any interest as I always pay back what I owe with a direct debit.


How do I fit into their business model? Am I just a loss leader customer, or is there another way they can make profit from me? Selling my spending habits data for example?


Just curious :j
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Comments

  • xebruary
    xebruary Posts: 45 Forumite
    edited 26 October 2019 at 9:12AM
    The merchant pays Amex a fee every time they accept their card, called an Interchange Fee. I believe with Amex it is between 2 and 4% depending on transaction type and whether the card is present. Amex give some of this revenue back to you as cashback and keeps the rest. So yes, you are profitable to them.
  • Nick_C
    Nick_C Posts: 7,499 Forumite
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    edited 26 October 2019 at 9:39AM
    The interchange fees on Amex cashback cards are not capped. This article explains it quite well https://www.headforpoints.com/2018/02/08/american-express-european-court-of-justice-interchange-fees/

    An interchange fee of 0.3% is not covering the cost of co-branded rewards credit cards, and these may disappear once current contracts end.

    Card issuers will make money out of customers who don't manage their accounts well. This subsidises customers like us.

    Retailers pay Merchant Service Fees. These are higher than the interchange fee.
  • xebruary
    xebruary Posts: 45 Forumite
    Nick_C wrote: »
    Card issuers will make money out of customers who don't manage their accounts well. This subsidises customers like us.

    Customers who pay every month (transactors) are not unprofitable, they are just less profitable than those that end up paying interest (revolvers). The losses that credit card firms need to cover are from those who default their account, which are customers they try not to attract.

    This from the FCA's interim report on its study of the credit card market:
    We found that a consumer who revolves their balance is typically more profitable than the same consumer who pays off their balance every month due to the net interest income they generate. However, transactors are typically profitable rather than lossmaking and firms’ business models are not predicated on turning transactors into revolvers over time.

    As transactors typically pay off their balance every month they tend not to attract interest income on their balance. These consumers generate revenue from interchange fees. These fees are derived from the value of transactions made using the card, hence greater spending on the card generates higher revenue. In addition, fees for cash withdrawals, overseas spending etc. are also a source of income from these consumers.
  • Nick_C
    Nick_C Posts: 7,499 Forumite
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    xebruary wrote: »
    Customers who pay every month (transactors) are not unprofitable, they are just less profitable than those that end up paying interest (revolvers). The losses that credit card firms need to cover are from those who default their account, which are customers they try not to attract.

    This from the FCA's interim report on its study of the credit card market:

    Most credit cards don't reward the customer (beyond a short period of interest free credit). The interchange fees cap has affected profitability of cards that give rewards. This is why we have seen cashback rates cut from 1% to 0.25% on many MCs and Visas.

    Most of my spending is on a BA Amex card. The interchange fee is now capped at 0.3%. The rewards (Avios) cost approximately 1%. I doubt that Amex are directly profiting from me.

    However, I still bring value to Amex even if they are not making a profit from me personally, as I add to their customer base and I choose retailers who accept Amex over those that do not.
  • Nebulous2
    Nebulous2 Posts: 5,361 Forumite
    Part of the Furniture 1,000 Posts Name Dropper
    They don't like you or hate you. It's a business relationship. You're just another number to them.
  • Ergates
    Ergates Posts: 2,477 Forumite
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    Oasis1 wrote: »
    Odd sounding question but hear me out. I have an AMEX, have had for nearly 4 years. I've earned cashback from it and have never paid any interest as I always pay back what I owe with a direct debit.


    How do I fit into their business model? Am I just a loss leader customer, or is there another way they can make profit from me? Selling my spending habits data for example?


    Just curious :j

    You're less profitable than those who regularly pay interest. On the other hand, you're not hassle and less risky. They're quite happy to have you as a customer.
  • System
    System Posts: 178,168 Community Admin
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    Nick_C wrote: »

    Most of my spending is on a BA Amex card. The interchange fee is now capped at 0.3%. The rewards (Avios) cost approximately 1%.

    However, I still bring value to Amex ...

    Obviously a very high opinion of yourself.

    Third party branded cards (covered by the EU cap) still exist due to contractual and financial arrangements with the brand.

    When these cease, they will either migrate to a non-branded Amex card or simply end the relationship.
  • Nick_C
    Nick_C Posts: 7,499 Forumite
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    Heng_Leng wrote: »
    Obviously a very high opinion of yourself.

    Third party branded cards (covered by the EU cap) still exist due to contractual and financial arrangements with the brand.

    When these cease, they will either migrate to a non-branded Amex card or simply end the relationship.

    A realistic one.

    Amex can have 3 million customers and lose money on some of them, or they can have 300,000 customers and make money on all of them.

    But which is the better model when Amex are trying to sign up new retailers to accept Amex as a payment method?
  • Ergates
    Ergates Posts: 2,477 Forumite
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    Heng_Leng wrote: »
    Obviously a very high opinion of yourself.

    Is "I bring value to a credit card company" really a "very high opinion" of oneself?
  • Oasis1 wrote: »
    Odd sounding question but hear me out. I have an AMEX, have had for nearly 4 years. I've earned cashback from it and have never paid any interest as I always pay back what I owe with a direct debit.


    How do I fit into their business model? Am I just a loss leader customer, or is there another way they can make profit from me? Selling my spending habits data for example?


    Just curious :j

    It’s not odd, many customers/consumers have the same attitude as you do. Been hearing it for 15 years :)
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