5 ms·

Yes. But how do banks make money? Surely they're not paying airlines for miles and distributing the miles free-of-charge to their card holders out of the goodne

by fizixer 10y ago

Yes. But how do banks make money? Surely they're not paying airlines for miles and distributing the miles free-of-charge to their card holders out of the goodness of their hearts. What are they getting in return? Either what I said above or something more/different (annual fees is another possibility?).

ajdlinux 10y ago
Interchange fees charged per-transaction by Visa/MC/Amex.
- pbreit 10y ago
  Correct. Merchants pay about 2% on credit card charges. The other big earnings stream for banks are finance charges on cardholders who carry a balance (ie, borrow money from bank).
  - dragonwriter 10y ago
    Every cardholder who uses their card borrows money; carrying a balance is a matter of not paying it back within the grace period, but you are borrowing money either way.
    - peteretep 10y ago
      Most attempts at pointless pedantry are incorrect. In this case, I have at least one credit card where I've put down a deposit of twice the spending limit of the card. At no time am I in debt to the bank, or borrowing money to them. Yes it's a credit card, not a debit card.
      - nommm-nommm 10y ago
        That's called a "secured card." Anyways, you were still borrowing money they just had you put up collateral first. You were still in debt to the bank, the fact they were holding collateral for the debt is irrelevant. It's like if I had a fedora collection worth $30,000 and I go to the pawn shop and they give me a $10,000 loan and hold my Fedora collection as collateral for that loan.
        ajdlinux 10y ago
        Forgive me if I'm missing something obvious, but what exactly is the point of a secured credit card - how is it really different from just paying in cash? (I'm from .au, where secured credit cards apparently don't exist, but I've read about the concept on the internet in the American context)
        peteretep 10y ago
        My card was issued somewhere I have no credit history. The point of the card is to have access to a credit card -- with its benefits -- without needing to borrow from the bank.
        nommm-nommm 10y ago
        It's to build credit. So if you have no history of paying back loans the bank doesn't want to loan you money unless you put up collateral. You use it to build up a credit history without risk of default to the bank - if you default they keep your collateral. Secured cards aren't intended to be used long term. They are only for when you don't have a history (or poor history) of paying back debts. Many (most?) secured cards automatically convert to a non secured cards after a while, like six months or so.
        ajdlinux 10y ago
        Thanks. Interesting to know - I wonder why banks over here don't think they're particularly necessary. (I got my first credit card, unsecured, when I was still an undergraduate working part-time and receiving government welfare payments...)
        dragonwriter 10y ago
        > Thanks. Interesting to know - I wonder why banks over here don't think they're particularly necessary. I suspect that there are probably regulatory or other systematic differences that make them not worth offering; while they are sold here as ways to build credit they don't seem to actually be necessary to that purpose. Even without credit cards, most people seem to be able to build a history of having and paying financial obligations that will result in sufficient credit to qualify for regular (if low-limit) credit cards in a reasonable period of time without secured cards.
      - dragonwriter 10y ago
        > Most attempts at pointless pedantry are incorrect. That wasn't an attempt at pedantry (ironically, it was actually abbreviated to avoid pointless pedantry; the original draft had "of conventional credit cards who have not paid on the account in advance of spending" after the "cardholders".) > In this case, I have at least one credit card where I've put down a deposit of twice the spending limit of the card. As a sibling comment and it's descendants point out, using such a secured card is still borrowing money in the same way that using an unsecured card is, and still subject to interest charges on the debt if not paid within a specified time just like unsecured cards. That you are putting up collateral to limit the banks default risk (and typically getting a better interest rate on any carried balance than anyone without excellent credit would get on an unsecured card because of that) doesn't alter that fact. > At no time am I in debt to the bank, or borrowing money to them. Yes you are; the bank just has possession of some of your property and a right to seize ownership of that property, as well as the possession it already holds, in the event of default on the debt. This is similar to what happens when you borrow money against property at a pawn shop.
nommm-nommm 10y ago
Annual fees, interchange fees, misc fees (late payment, etc), and interest. Same way banks make money off the rest of it's cardholders.
- jessriedel 10y ago
  To be clear: the interchange fees (~2.7%) paid by the merchants are the cost that is always there and completely covers the kickbacks to the consumer. The other things are certainly money makers, but they may or may not be negligible depending on the card and the consumer.
  - sitepodmatt 10y ago
    Interchange fees dont go directly to bank providing the card afaik. Visa/Mastercard network take a cut, I recall reading 0.25% on CC in Europe? Then the merchant bank takes a cut (merchant services and shouldering last man standing chargeback/fraud risks - hence why sometimes merchants pay 4%+) and then hmm anyone else?? I doubt any more than 1% is remitted to the bank providing the card given I know some physical retailer (small) paying ~1.4% in UK. In the UK they also market you for $. They ain't sending you that exclusive "loyal VIP customer" introduction/bonus offer for virgin wine, or some fitness club, or breakdown out the goodness of their heart..Which is probably another nice earner on top of everything else
    - nommm-nommm 10y ago
      >anyone else?? Credit card partners! So if you get your favorite sports team's credit card, they get a cut. http://www.doctorofcredit.com/everything-you-ever-wanted-to-know-about-credit-card-partners-how-much-they-make-more/ http://www.doctorofcredit.com/everything-you-ever-wanted-to-... There's even a Linux credit card (not kidding) https://www.linuxfoundation.org/offerings/linux-credit-card https://www.linuxfoundation.org/offerings/linux-credit-card
    - Symbiote 10y ago
      The European rules to limit transaction fees seem to have removed almost all cashback cards from the UK. There are still some [1] with introductory cashback, or very limited cashback, but nothing like the 2-3% ones that used to exist. I'm not sorry to see them go -- charging all customers an extra 1.5% (or whatever) in order to give a savvy few cashback isn't fair. [1] http://www.moneysavingexpert.com/credit-cards/cashback-credit-cards#bestbuys http://www.moneysavingexpert.com/credit-cards/cashback-credi...

by fizixer 10y ago

ajdlinux 10y ago

Interchange fees charged per-transaction by Visa/MC/Amex.

pbreit 10y ago
Correct. Merchants pay about 2% on credit card charges. The other big earnings stream for banks are finance charges on cardholders who carry a balance (ie, borrow money from bank).
- dragonwriter 10y ago
  Every cardholder who uses their card borrows money; carrying a balance is a matter of not paying it back within the grace period, but you are borrowing money either way.
  - peteretep 10y ago
    Most attempts at pointless pedantry are incorrect. In this case, I have at least one credit card where I've put down a deposit of twice the spending limit of the card. At no time am I in debt to the bank, or borrowing money to them. Yes it's a credit card, not a debit card.
    - nommm-nommm 10y ago
      That's called a "secured card." Anyways, you were still borrowing money they just had you put up collateral first. You were still in debt to the bank, the fact they were holding collateral for the debt is irrelevant. It's like if I had a fedora collection worth $30,000 and I go to the pawn shop and they give me a $10,000 loan and hold my Fedora collection as collateral for that loan.
      - ajdlinux 10y ago
        Forgive me if I'm missing something obvious, but what exactly is the point of a secured credit card - how is it really different from just paying in cash? (I'm from .au, where secured credit cards apparently don't exist, but I've read about the concept on the internet in the American context)
        peteretep 10y ago
        My card was issued somewhere I have no credit history. The point of the card is to have access to a credit card -- with its benefits -- without needing to borrow from the bank.
        nommm-nommm 10y ago
        It's to build credit. So if you have no history of paying back loans the bank doesn't want to loan you money unless you put up collateral. You use it to build up a credit history without risk of default to the bank - if you default they keep your collateral. Secured cards aren't intended to be used long term. They are only for when you don't have a history (or poor history) of paying back debts. Many (most?) secured cards automatically convert to a non secured cards after a while, like six months or so.
        ajdlinux 10y ago
        Thanks. Interesting to know - I wonder why banks over here don't think they're particularly necessary. (I got my first credit card, unsecured, when I was still an undergraduate working part-time and receiving government welfare payments...)
        dragonwriter 10y ago
        > Thanks. Interesting to know - I wonder why banks over here don't think they're particularly necessary. I suspect that there are probably regulatory or other systematic differences that make them not worth offering; while they are sold here as ways to build credit they don't seem to actually be necessary to that purpose. Even without credit cards, most people seem to be able to build a history of having and paying financial obligations that will result in sufficient credit to qualify for regular (if low-limit) credit cards in a reasonable period of time without secured cards.
    - dragonwriter 10y ago
      > Most attempts at pointless pedantry are incorrect. That wasn't an attempt at pedantry (ironically, it was actually abbreviated to avoid pointless pedantry; the original draft had "of conventional credit cards who have not paid on the account in advance of spending" after the "cardholders".) > In this case, I have at least one credit card where I've put down a deposit of twice the spending limit of the card. As a sibling comment and it's descendants point out, using such a secured card is still borrowing money in the same way that using an unsecured card is, and still subject to interest charges on the debt if not paid within a specified time just like unsecured cards. That you are putting up collateral to limit the banks default risk (and typically getting a better interest rate on any carried balance than anyone without excellent credit would get on an unsecured card because of that) doesn't alter that fact. > At no time am I in debt to the bank, or borrowing money to them. Yes you are; the bank just has possession of some of your property and a right to seize ownership of that property, as well as the possession it already holds, in the event of default on the debt. This is similar to what happens when you borrow money against property at a pawn shop.

nommm-nommm 10y ago

Annual fees, interchange fees, misc fees (late payment, etc), and interest. Same way banks make money off the rest of it's cardholders.

jessriedel 10y ago
To be clear: the interchange fees (~2.7%) paid by the merchants are the cost that is always there and completely covers the kickbacks to the consumer. The other things are certainly money makers, but they may or may not be negligible depending on the card and the consumer.
- sitepodmatt 10y ago
  Interchange fees dont go directly to bank providing the card afaik. Visa/Mastercard network take a cut, I recall reading 0.25% on CC in Europe? Then the merchant bank takes a cut (merchant services and shouldering last man standing chargeback/fraud risks - hence why sometimes merchants pay 4%+) and then hmm anyone else?? I doubt any more than 1% is remitted to the bank providing the card given I know some physical retailer (small) paying ~1.4% in UK. In the UK they also market you for $. They ain't sending you that exclusive "loyal VIP customer" introduction/bonus offer for virgin wine, or some fitness club, or breakdown out the goodness of their heart..Which is probably another nice earner on top of everything else
  - nommm-nommm 10y ago
    >anyone else?? Credit card partners! So if you get your favorite sports team's credit card, they get a cut. http://www.doctorofcredit.com/everything-you-ever-wanted-to-know-about-credit-card-partners-how-much-they-make-more/ http://www.doctorofcredit.com/everything-you-ever-wanted-to-... There's even a Linux credit card (not kidding) https://www.linuxfoundation.org/offerings/linux-credit-card https://www.linuxfoundation.org/offerings/linux-credit-card
  - Symbiote 10y ago
    The European rules to limit transaction fees seem to have removed almost all cashback cards from the UK. There are still some [1] with introductory cashback, or very limited cashback, but nothing like the 2-3% ones that used to exist. I'm not sorry to see them go -- charging all customers an extra 1.5% (or whatever) in order to give a savvy few cashback isn't fair. [1] http://www.moneysavingexpert.com/credit-cards/cashback-credit-cards#bestbuys http://www.moneysavingexpert.com/credit-cards/cashback-credi...