Forum: money.stackexchange.com
Tags: <credit-card><financial-literacy><profitability>
Title: How can a credit card company make any money off me? I have a no-fee card and pay my balance on time
Question: How does a credit card company make any money off of me using their card if there are no fees associated with the card (I don't pay any extra) and I pay off my balance on time every month (so I don't pay any fees ever for this either).  Are they just banking on the fact that many people don't do this and end up owing them money?

Answers:
sents: text: Credit cards have two revenue streams:
text: They collect a fee, usually 2-3% for each transaction from merchants
text: They collect interest and fees from you.
text: So yes, the are making money from your daily use of the card.
answer_details: author: money.stackexchange.com/users/1288/duffbeer703
score: 57
sents: text: They don't make any money off of you personally.
text: They make money off of the merchants per transaction when you use the card.
text: You trigger this fee to the credit card issuer, but it doesn't come out of your pocket.
text: (Or it shouldn't; merchants aren't allowed to pass this fee on to you.)
text: They keep you around because you may at some point become less responsible than you already are, and it would be quite costly to get you back (a couple hundred dollars is the cost of acquiring a new credit card customer).
text: People who are less responsible than you subsidize your free float and your rewards (if any) but the new CARD act makes it more difficult for people to use their cards irresponsibly, so these perks that you enjoy will get less perky with time.
answer_details: author: money.stackexchange.com/users/414/mbhunter
score: 27
sents: text: Of course they make money.
text: They double dip in a lot of instances they make 2 - 3% plus $0.30 per transaction from the merchant and then whatever interest you pay on your card.
text: So let's just say in one day you make stops at Starbucks for a $4 Latte, then at Wendy's for lunch for about $8, then you put about $20 worth of gas in your tank, then you stop at Kroger for some $40 groceries and may you pick up some dinner for about $15.
text: That's 5 transactions at $0.30 which is a $1.50 then at 3% starbucks
text: is $0.12, Wendy's $0.24, gas is $0.60 then kroger $1.20 then dinner $0.45
text: so the total that they get is $4.11 multiply this by about a million people per day that is about $4.1 million per day that they get.
text: That is a nice penny!
text: just from the merchant
text: so you are making them a lot of money by just using it.
answer_details: author: money.stackexchange.com/users/5639/Danny
score: 11
sents: text: Maybe they don't make much, but they make some for sure.
text: In addition to what duffbeer703 says , they also have a warm body at the end of the line and will sell your contact info (or at least access to your eyeballs) to marketers.
text: They stuff advertisements into your bill for example.
text: If nothing else, you are brand value for them as they can convince merchants (who get charged monthly) that X billion people carry their card and that merchant would be missing out on sales by not accepting their product.
text: If you have a rewards card that pays you for using it, the merchant has higher corresponding fees.
answer_details: author: money.stackexchange.com/users/91/MrChrister
score: 10
sents: text: Ever wonder why certain businesses won't accept certain credit cards?
text: (The sign above the register saying "Sorry, we don't accept AmericanExpress").
text: It's because they don't want to pay that credit card company's transaction fees.
text: One of the roles of the credit card company is to facilitate the transaction process between the customer (you) and the store.
text: And now that using credit cards over cash or check is so ingrained in our culture, it creates extra work for the customer to make purchases at an establishment that is cash-only.
text: Credit card companies know this, and so do businesses.
text: So businesses will partner with credit card companies so that customers can use their cards.
text: This way, everything is handled electronically (this can also benefit the business, since there's added security as they're not dealing with cash directly, and they don't have to manually count as much cash later).
text: However a business may only budget a certain amount of their profits they want taken by credit card transactions.
text: So if a company's fees are too high (say AmericanExpress, for example) and they are banking on you already having a Visa card, the company isn't going to go out of its way to provide the AmericanExpress option for you.
text: If it were free for the business to use a credit card company's service at their stores, then they would all just provide the option for every card!
text: So the credit card company making money is all contingent on you spending your money by using their credit card.
text: You use the card, and the store pays the company for the transaction.
answer_details: author: money.stackexchange.com/users/37644/flareartist
score: 3

Summary of the answers:
They make money per transaction when you use the card. It's usually 2-3% per transaction.
Generally speaking, the credit card issuer charges merchants for every transaction you make. They only make money off you personally if you incurr interest on the money you have borrowed.