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How Do Credit Card Companies Make Money?

How Do Credit Card Companies Make Money?

For people who pay their credit card bills on time, it can be hard to imagine how credit card companies ever make money. However, they have a system down that ensures they’ll always get a cut. Here’s a look at how “retail network managers” like Visa and Mastercard stay in business.

How does it work?
CUSTOMER MERCHANT MERCHANT BANK ISSUER NETWORKS

(You) STORE (Wells Fargo) (Citibank) (VISA)
.....................
1 - A customer visits a store and spends $10 in merchandise.
2 - The customer swipes his credit card to pay for it.
3 - The card reader recognizes who the customer is
and contacts the bank (Citibank, for example)
that issued the credit card.
4 - Citibank sends $10 to the merchant’s bank
(Wells Fargo). Then Wells Fargo deposits $9.80 to
the merchant’s bank account.
5 - That 20c, a 2% fee, is taken from the $10 and
given to Citibank, which then splits it with the
credit card company. *

* Depending on company, country, and merchant this can range
from 1% to 6%.
The amount the bank gets and the amount Visa gets is a negotiated
deal. Also, Visa and Mastercard charge the banks an annual fee, to
simply be a part of their network.


Credit card companies
make money in a number of ways

I - Fees (annual fee, overlimit, past due, etc)

II - Interest on the revolving loan if a credit card
balance is not paid in full each month.

III - The card Issuer [the bank that issued the card and/or
the issuer network ie: Visa, MS, American Express, JCB
etc] makes a percentage of each item you purchase
from the merchant who accepts your credit card.
These rates range from 1% to 4% of each purchase.

IV - The cardholder can make additional money through
other means, such as selling your name to a mailing
list or sending advertisements in your monthly bill.
(Due to regulation, this is becoming less frequent).


The most popular credit cards
Capital One "VentureOne"
Rate *****
APR: 13.90%
Credit Score Needed - Excellent

Citi *Platinum Select* MasterCard
Rate ****
APR: 11.99 - 19.99%
Credit Score Needed - Good

Discover More Card
Rate * * * *
APR: 11.99 - 20.99%
Credit Score Needed - Excellent

Chase Freedom Visa
Rate ****
APR: 12.99 - 22.99%
Credit Score Needed - Excellent

Capital One No Hassle Cash
Rate ****
APR: 14.9%
Credit Score Needed - Excellent

Information provided by www.creditscore.net CREDITSCORE

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How Do Credit Card Companies Make Money?

shared by gobieta on Jul 18, 2011 in Economy

How Do Credit Card Companies Make Money?

shared by gobieta on Jul 18, 2011 in Economy

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A look at how retail network managers like Visa and Mastercard stay in business.
Rank: 57 of 4864 in Economy

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