How do Credit Card Companies make money?

[Train]

Personally I'm curious what it costs vendors to accept debit cards vs. credit cards...

Because I know of a few places that have accepted debit but not credit. Less % fee?

It varies a lot by volume and business type.


If you are a grocery store that does millions in volume, you will get a very low rate and low fee due to the relatively low amount of CC fraud and chargebacks.

If you are a porn site hosted in China, you will pay a high rate and high transaction fee. And may even have to wait 30 days to get your funds.

 

[saratoga172]

Personally I'm curious what it costs vendors to accept debit cards vs. credit cards...

Because I know of a few places that have accepted debit but not credit. Less % fee?

I used to work retail and they urged us to push debit transactions over credit transactions as much as possible. The company paid a flat 50 cent fee for every debit transaction. This really benefitted the company when the customer spent $25 or more which was about 90% of the time. We rarely had customers spending less than $25 per transaction.

The credit fees if I recall correctly were between 1-2%. We didn't accept Amex because they were 2.5 at the time. Fees depended on the processor and rate that was negotiated.

 

[LegendKiller]

That's what I'm gathering.
The [20% who pay off] are what gives the credit pool its stability, so it is more valuable to investors.

Still, it's hard to imagine this segment "making money", outside of interchange fees.

Keep in mind that it is that much on effectively 0 capital.

 

[saratoga172]

More like you pay the fee. So ~25cents.

Ought have changed recently but about 5 years ago when I worked retail we paid a 50 cent fee per debit transaction. That was in comparison to 1-2% per credit transaction. Average transaction for us was above $100 so it made sense to push customers to use debit.

 

[mammador]

probably been aanswred but they get a fee from every purchase.

And they licence their card name/brand. So they get money from Tesco, Walmart, and the like Visa/Mastercard cards.

Plus there are the annual subscription fees, sign-up/joining fees, etc.

that said, there should be some qualifications for credit card use...it caused the Great Recession.

 

[mammador]

i would never pay an annual fee for a credit card. they make way too much money to justify an annual fee.

as a right to use their card, why not?

 

[LegendKiller]

It would not surprise me.

Be very surprised. It is about 20% for chase,25% for citi, 36% for cabelas, 20% for capital one, 15% for bank of america.

 

[Exterous]

So I can never justify the Sapphire. He must get a lot from Chase...

There are a couple of benefits to the Sapphire that make it one of 3 cards I continue to carry despite the annual fee. If you travel a lot on awards the biggest IMO is that the Chase Sapphire only requires a portion of your fare to be purchased with the card in order to get travel insurance coverage. So when we paid $11 in fees and used miles for a Southwest flight that was cancelled Chase covered $250 in rental car and gas costs. When we paid $35 in taxes and fees Chase paid for $200 of clothing when our luggage was delayed going to London. This coverage is exceedingly rare as most require you to cover the full cost of the fare and use of miles will often invalidate coverage. I am only aware of one other card that offers this.

It also offers Primary Rental car coverage and I get some benefit from the Visa Luxury Hotel collection but not as much as Amex's program. I also like the fact that there are no automated prompts and the CS agent is actually empowered to help without needing to transfer me for everything

 

[AznAnarchy99]

There are a couple of benefits to the Sapphire that make it one of 3 cards I continue to carry despite the annual fee. If you travel a lot on awards the biggest IMO is that the Chase Sapphire only requires a portion of your fare to be purchased with the card in order to get travel insurance coverage. So when we paid $11 in fees and used miles for a Southwest flight that was cancelled Chase covered $250 in rental car and gas costs. When we paid $35 in taxes and fees Chase paid for $200 of clothing when our luggage was delayed going to London. This coverage is exceedingly rare as most require you to cover the full cost of the fare and use of miles will often invalidate coverage. I am only aware of one other card that offers this.

It also offers Primary Rental car coverage and I get some benefit from the Visa Luxury Hotel collection but not as much as Amex's program. I also like the fact that there are no automated prompts and the CS agent is actually empowered to help without needing to transfer me for everything

That was actually really nice when I called in. Amex needs to get on that with their Platinum card.