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Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, an

Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to. So credit card companies are probably making more money off their less-well-off users as a group than the more-well-off, though it may still be that individual well-off users are more profitable than other individuals.

LordGrey 2y ago
> Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to. Those customers are called Deadbeats[1]. All credit card customers should strive to be Deadbeats. [1] https://www.investopedia.com/terms/d/deadbeat.asp https://www.investopedia.com/terms/d/deadbeat.asp
- xenospn 2y ago
  In my mind, this implies that the vast majority of customers are not deadbeats - meaning they never pay off their cards in full and always have interest?
  - LordGrey 2y ago
    My understanding is that 25-30% of all credit card customers are deadbeats. I've worked with some fintech companies and that number came up in some discussions. I cannot, however, find a corroborating source.
andthenzen 2y ago
Worth noting that this varies heavily by issuer - I checked out the most recent 10Ks for Amex and Discover (Visa and MC are networks and as such, operate off interchange, not interest, and I tried looking at Chase's 10K but it was too complicated for me to figure out the revenue breakdowns for their consumer card business) * Amex had 67b in interest + non-interest revenue, of which the single biggest driver was discount revenue (aka interchange) at 33b. Interest contributed 20b, card membership fees contributed 7b, and services fees and other were ~7b combined. Amex's target base is wealthier individuals. * Discover had 14.4b in credit card interest revenue and 1.4b in net discount and interchange revenue (meaning after paying rewards). Discover caters mostly to what the financial industry would euphemistically call "subprime" creditors.
hot_gril 2y ago
There are also well-off people who don't watch their bills super closely and accidentally pay fees. Autopay is disabled by default, and default autopay mode is often "min due," which results in interest owed. Or they charge random bs fees people let slide.

LordGrey 2y ago

> Credit card companies make a decent amount of their money from the interchange fees, but the majority of their income comes from interest, cash advance fees, and penalty fees, all of which the well-off credit card user paying off their balance each month does not contribute to. Those customers are called Deadbeats[1]. All credit card customers should strive to be Deadbeats. [1] https://www.investopedia.com/terms/d/deadbeat.asp https://www.investopedia.com/terms/d/deadbeat.asp

xenospn 2y ago
In my mind, this implies that the vast majority of customers are not deadbeats - meaning they never pay off their cards in full and always have interest?
- LordGrey 2y ago
  My understanding is that 25-30% of all credit card customers are deadbeats. I've worked with some fintech companies and that number came up in some discussions. I cannot, however, find a corroborating source.

andthenzen 2y ago

Worth noting that this varies heavily by issuer - I checked out the most recent 10Ks for Amex and Discover (Visa and MC are networks and as such, operate off interchange, not interest, and I tried looking at Chase's 10K but it was too complicated for me to figure out the revenue breakdowns for their consumer card business) * Amex had 67b in interest + non-interest revenue, of which the single biggest driver was discount revenue (aka interchange) at 33b. Interest contributed 20b, card membership fees contributed 7b, and services fees and other were ~7b combined. Amex's target base is wealthier individuals. * Discover had 14.4b in credit card interest revenue and 1.4b in net discount and interchange revenue (meaning after paying rewards). Discover caters mostly to what the financial industry would euphemistically call "subprime" creditors.

hot_gril 2y ago

There are also well-off people who don't watch their bills super closely and accidentally pay fees. Autopay is disabled by default, and default autopay mode is often "min due," which results in interest owed. Or they charge random bs fees people let slide.