Credit card companies make enough money from interchange fees to completely cover the cost of credit card issuers' rewards programs. The revenue from interchange fees is substantial. The fee comes out of the retailer's pocket, so that's why some retailers will give you a discount for using cash rather than a credit card it's less expensive for them, and they keep more of their profits. This fee - known as an interchange fee - ranges from 1% to 3% of the transaction amount. When you use a credit card to make a purchase or pay for a service, the retailer has to pay the credit card network a fee to facilitate the transaction. The card's APR would cause her to repay more than $550 in interest charges to her credit card issuer. If she only pays the minimum each month, it would take her 52 months to pay off her card, and she'd pay a total of $1,559.61. Jane has a $1,000 balance on a credit card at 22.77% APR, and her minimum monthly payment is $30. How does that affect your repayment? Consider this example: The average annual percentage rate (APR) for credit cards that assessed interest was 22.77%. According to the Government Accountability Office, approximately 45% of card users carry a balance, so a significant portion of users pay credit card interest.Īnd interest charges can be significant. When you carry a balance on a credit card - meaning you don't pay off the balance in full by the due date and carry it over to the following statement cycle - you pay interest to the credit card issuers. ![]() Credit card companies make money in three core ways: 1. ![]() The CFPB reported that credit card returns exceed the returns of all other bank activities.Īt the end of 2022, credit card debt exceeded $1 trillion for the first time, and consumers paid credit card companies over $130 billion. How do credit card companies make money?Īs mentioned earlier, credit cards are profitable. Once this process is complete, the card issuer pays the retailer for the amount of the transaction. When the issuer receives the transaction, it approves or denies it and responds through the network. When you make a purchase online or in person, the retailer sends a request to the credit card issuer through the specific credit card network. But there are many steps that happen whenever you use your card. ![]() The largest issuers include American Express, Bank of America, Capital One, Chase, Citi, and Discover.įor example, the Chase Sapphire Preferred® Card is issued by Chase but operates on the Visa network, while the Blue Cash Preferred® Card from American Express is both issued by American Express and on the American Express network.Īs a consumer, you likely never think about how involved a process it is to use a credit card. According to the Consumer Financial Protection Bureau (CFPB), there are nearly 4,000 issuers in the United States. The issuer is who reviews your application, sets the card's terms, and sets your credit limit. In the United States, there are four major credit card networks: American Express, Discover, Mastercard, and Visa.Ĭredit card issuer: Issuers are banks, credit unions, or other financial institutions that provide cards directly to customers. The network is what authorizes and settles credit card transactions. To understand the credit card industry, the first thing to know is that there are credit card networks and credit card issuers.Ĭredit card network: A credit card network is the company that connects merchants and financial institutions issuing the cards. Understanding how credit card companies make money and adjusting how you use your card can minimize how much you pay them. But how do credit card companies make money if they provide rewards? These companies make significant amounts of money through credit card interest charges and added fees. In fact, cardholders with rewards cards had a combined total rewards balance of $33 billion at the end of 2022.Įven though credit card rewards programs are common - 84% of credit card users have at least one rewards card - credit card companies remain enormously profitable. It seems like rewards credit cards are everywhere.
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