How 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. CUSTOMER MERCHANT MERCHANT BANK ISSUER NETWORKS How does it work? VISA (You) (Wells Fargo) (Citibank) 1 A customer visits a store and spends $10 in merchandise. 2 The customer swipes his credit card to pay for it. The card reader recognizes who the customer is and contacts the bank (Citibank, for example) that issued the credit card. STORE VISA $10 4 Citibank sends $10 to the merchant's bank (Wells Fargo). Then Wells Fargo deposits $9.80 to the merchant's bank account. 6 That 20¢, a 2% fee, is taken from the $10 and given to Citibank, which then splits it with the credit card company. O O 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. $10 STORE $9.80 Credit card companies make money in a number of ways O Fees (annual fee, overlimit, past due, etc) NETWORKS II Interest on the revolving loan if a credit card ¢.20 ¢.10 VISA balance is not paid in full each month. 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. ISSUER ¢.10 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 bilI. (Due to regulation, this is becoming less frequent). The most popular credit cards Capital One VentureOneM Discover" More" Card Chase Freedom Visa Capital One No Hassle Cash Citi" Platinum Select" MasterCard" * **** **** ***** ***** APR: 11.99 - 20.99% APR: 13.90% APR: 12.99 - 22.99% APR: 11.99 - 19.99% APR: 14.9% Credit Scere Credit Score Needed Good Needed Needed Excellent Excellent Excellent Sources: Answers.com | weakonomics.com | cardratings.com Information provided by: www.creditscore.net CREDITSCORE