Barclaycard - Failing Eligibility Check

born_again

Fact is banks do not care if you pay off each month or not. Simple as that. Most CC customers hold other products as well. 

Just like Tesco, do not care if you pop in & only buy a loss leader, They just hope you might pick up something that they make more profit on.

WillPS

CliveOfIndia said:

So how come Imagine Bank retains the approximately 50% of its card customers who never pay interest or fees?  People like myself.  They're making a loss out of me every month, and are getting nothing at all back.  In fact, they're making an even bigger loss because I get cashback and various other rewards on all my spending.  I must be costing them a fortune.  Yet all they ever do is offer to increase my credit limit every so often.

I think the CFO at Imagine Bank must be a sandwich short of a picnic if he wants to keep me as a customer - it makes no financial or commercial sense whatsoever to have me costing them money every month.

By hoping that you do something which earns them money, eventually. Maybe use your card abroad (where they'll get more interchange revenue and FX fees). Maybe you'll have a tight month and end up paying a bit of interest.

Imagine Bank doesn't know definitively which customers which customers will and won't pay interest at the point of application, but looking for evidence of paying in full might be something they do to filter out customers who are unlikely to make money.

Alternatively Imagine Bank might be intentionally loss leading to build up a customer base and target them for more lucrative products.

I think you're making a mistake by assuming that all banking products are structured in such a way that the bank will always make money individually in every case. As an example - Halifax Reward account offers a £5 fixed payment in exchange for paying in £1500 (which earns nothing unless it's left in the account) and spending £500 on a debit card (the total interchange revenue on which will be £1, which they'll have to split with Visa). How would Halifax ever make a profit on this? The answer is by hoping their customers do something other than simply adding a deposit, spending exactly £500 (in the UK) and transferring the rest away.

In general, current accounts are only profitable if customers are lazy (leave huge balances with little or zero interest) or go overdrawn. Yes there are other bits and bobs which make small amounts - like interchange commission or retailer cashback - but the big money comes from fees and interest.

WillPS

born_again said:

Fact is banks do not care if you pay off each month or not. Simple as that. Most CC customers hold other products as well. 

Just like Tesco, do not care if you pop in & only buy a loss leader, They just hope you might pick up something that they make more profit on.

Your second point is largely true - it's all a numbers game. Unlike Tesco however banks have an ability to check at the doors whether you're the sort of customer they want in their shop...

WillPS

IanManc said:

WillPS said:

Easy numbers, presuming UK issued cards used in UK.

When a merchant processes a credit card, they pay fees to their acquiring bank. The fees will include exactly 0.3% worth of interchange, but will of course be much higher than that so that their acquiring bank earns a profit after all their expenses too.

The exact same is true for merchants processing a debit card, except this time the interchange fee will be exactly 0.2%.

Now imagine you are a UK credit card issuer, let's call it Imagine Bank. Lets ignore all the costs of administering, issuing, running backoffice etc - we've outsourced to that to some sucker who is doing that for free. Let's also pretend that Imagine Bank has got a sweet deal with Mastercard where they have for some reason agreed to give Imagine Bank their entire interchange revenue. Imagine Bank therefore knows that every time your card is used in the UK they'll be earning 0.3%! Woohoo, these are the good times right?

OK, now Imagine Bank generates a statement with all that spending. Let's say again, the process of doing this cost zero. Total transaction revenue is 0.3% of the bill - £1000 bill, Imagine Bank have earned £3! But hold the corks guys... the customer wants to pay with their debit card.

What is *the minimum* it would cost for Imagine Bank to run a charge against a UK debit card for that £1000? Remember that even though the Interchange Fee cap on debit cards is 0.2%, Imagine Bank's acquiring bank will also be expecting something. How does that sweet £3 profit look now?

I know that you love this topic, but to save you having to go down this rabbit hole ever again, the following article explains everything:

https://startups.co.uk/payment-processing/credit-card-processing-fees/#:~:text=The average credit card processing,fees, such as authorisation fees.

That article only mentions the word 'interchange' once and then erroneously explains it as charged by banks. It isn't.

The whole issue here is the conflation between what a merchant pays for card acceptance vs what Visa/Mastercard get (which is the only portion the issuer will derive revenue from).

Conflating the two leads to the myth that card companies make "plenty" from interchange, when in fact they don't, they make an absolutely tiny amount; so tiny in fact that when you consider any of the costs involved for them it's very hard to see how they'd make significant profit from customers who pay their bills in full.

born_again

WillPS said:

born_again said:

Fact is banks do not care if you pay off each month or not. Simple as that. Most CC customers hold other products as well. 

Just like Tesco, do not care if you pop in & only buy a loss leader, They just hope you might pick up something that they make more profit on.

Your second point is largely true - it's all a numbers game. Unlike Tesco however banks have an ability to check at the doors whether you're the sort of customer they want in their shop...

But they can't check if you are going to pay in full each month (sure you can set up a DD saying full, but change it later. Or you might hit the buffers later on as plenty do.

MrFrugalFever

I am not sure your 0.3% and 0.2% revenue assumptions are entirely correct, are you suggesting that the likes of Barclaycard Rewards Card offering 0.25% cashback on almost every transaction is only making 0.05% ‘profit’ from each purchase made? There’s generally anywhere between 2.75 - 3% fees levied by using a CC, the lender CC must be taking a larger chunk of this than the prescribed 0.3% you suggest?

WillPS

MrFrugalFever said:

I am not sure your 0.3% and 0.2% revenue assumptions are entirely correct, are you suggesting that the likes of Barclaycard Rewards Card offering 0.25% cashback on almost every transaction is only making 0.05% ‘profit’ from each purchase made? There’s generally anywhere between 2.75 - 3% fees levied by using a CC, the lender CC must be taking a larger chunk of this than the prescribed 0.3% you suggest?

The interchange fee for Visa and Mastercard is capped at 0.3% by law. Merchants will pay more but none of that gets back to the issuer.

This isn't an assumption, it's a fact. The (wrong) assumption in the example I gave is that the issuer gets all of that 0.3% - if they did then Visa/Mastercard would earn nothing. In actual fact they will get less; given so much of the cashback market is at ~0.25% you might presume that this is around-about the figure received.

The Rewards Card is far from the most generous on the market as well. Barclaycard themselves offer an Avios credit card which pays 1 Avios per £ spent with no monthly/annual fee. Of course, we don't know definitively how much Barclays are paying for Avios points, but I rather suggest it is significantly more than 0.3p per piece.

Like I said upthread - it's a mistake to believe financial products are universally structured in a way which assures the lender makes a profit from all or even a majority of the customers who take it. 

MattMattMattUK

MrFrugalFever said:

I am not sure your 0.3% and 0.2% revenue assumptions are entirely correct, are you suggesting that the likes of Barclaycard Rewards Card offering 0.25% cashback on almost every transaction is only making 0.05% ‘profit’ from each purchase made? There’s generally anywhere between 2.75 - 3% fees levied by using a CC, the lender CC must be taking a larger chunk of this than the prescribed 0.3% you suggest?

The fees are nowhere near that high, my business for example pays a maximum of 1.4% to process a UK card, the days of fees more than 2% are long gone for most businesses unless they operate in a particularly high risk environment.