Prior to even reading the article, my assumption was that credit card issuers made money on: loan interest, membership fees, cash withdrawals (don't do this with a credit card, the fees associated...
Prior to even reading the article, my assumption was that credit card issuers made money on: loan interest, membership fees, cash withdrawals (don't do this with a credit card, the fees associated with it are astronomical) and transaction fees (which the merchant generally has to pay.)
Having read through large parts of it, it seems I'm right, though the article's explanation of the credit card's history and mechanics feels very complicated.
In layman's terms, it's basically a short term loan card which you can use to borrow money from the card issuer. Even if you use it like a regular bank card and ensure to pay off the balance each month without accruing any interest, the issuer still benefits from this because of the aforementioned transaction fees that the merchants cough up.
And now a few fun facts:
American Express isn't taken by a lot of vendors because they charge substantially higher transaction fees. At one point I think it was three times what Visa and Mastercard charged.
Lots of pubs and restaurants in Britain refused to accept card payments or only allowed them with cashback or a minimum order amount. COVID changed that and basically forced them to take contactless and app payments as a matter of public safety.
Yes, that's roughly what I thought before reading it too. The part that's a bit more surprising is that credit cards also make money via marketing, through their rewards programs. Getting you to...
Yes, that's roughly what I thought before reading it too. The part that's a bit more surprising is that credit cards also make money via marketing, through their rewards programs. Getting you to buy from one merchant versus another one by giving discounts is apparently very lucrative? You can put that under "charging the merchants" but this is something the larger merchants do deliberately to drum up business, like buying advertising.
Airline and hotel marketing, in particular, are big money. From the linked article:
The Financial Times pegs the value of Delta’s loyalty program at a whopping $26 billion, American Airlines at $24 billion, and United at $20 billion. All of these valuations are comfortably above the market capitalization of the airlines themselves — Delta is worth $19 billion, American $6 billion, and United $10 billion. In other words, if you take away the loyalty program, Delta’s real-world airline operation — with hundreds of planes, a world-beating maintenance operation, landing rights, brand recognition, and experienced executives — is worth roughly negative $7 billion. But economics of the loyalty program don’t work without a robust airline operation.
That's an article from a year ago, and it looks like airline stocks have recovered somewhat.
It seems similar to how Google mostly makes money from selling ads. It's a bigger business than I expected back when I started there.
I mostly ignore rewards programs, but I've met people who are totally into them.
Just goes to show there is a silver lining to everything. In America I have really appreciated the fact that most drive thrus now accept mobile tap-and-pay services. Being able to just hover my...
Lots of pubs and restaurants in Britain refused to accept card payments or only allowed them with cashback or a minimum order amount. COVID changed that and basically forced them to take contactless and app payments as a matter of public safety.
Just goes to show there is a silver lining to everything.
In America I have really appreciated the fact that most drive thrus now accept mobile tap-and-pay services. Being able to just hover my watch over a payment terminal without me or the cashier having to touch anything is nice.
Prior to even reading the article, my assumption was that credit card issuers made money on: loan interest, membership fees, cash withdrawals (don't do this with a credit card, the fees associated with it are astronomical) and transaction fees (which the merchant generally has to pay.)
Having read through large parts of it, it seems I'm right, though the article's explanation of the credit card's history and mechanics feels very complicated.
In layman's terms, it's basically a short term loan card which you can use to borrow money from the card issuer. Even if you use it like a regular bank card and ensure to pay off the balance each month without accruing any interest, the issuer still benefits from this because of the aforementioned transaction fees that the merchants cough up.
And now a few fun facts:
American Express isn't taken by a lot of vendors because they charge substantially higher transaction fees. At one point I think it was three times what Visa and Mastercard charged.
Lots of pubs and restaurants in Britain refused to accept card payments or only allowed them with cashback or a minimum order amount. COVID changed that and basically forced them to take contactless and app payments as a matter of public safety.
Yes, that's roughly what I thought before reading it too. The part that's a bit more surprising is that credit cards also make money via marketing, through their rewards programs. Getting you to buy from one merchant versus another one by giving discounts is apparently very lucrative? You can put that under "charging the merchants" but this is something the larger merchants do deliberately to drum up business, like buying advertising.
Airline and hotel marketing, in particular, are big money. From the linked article:
That's an article from a year ago, and it looks like airline stocks have recovered somewhat.
It seems similar to how Google mostly makes money from selling ads. It's a bigger business than I expected back when I started there.
I mostly ignore rewards programs, but I've met people who are totally into them.
Just goes to show there is a silver lining to everything.
In America I have really appreciated the fact that most drive thrus now accept mobile tap-and-pay services. Being able to just hover my watch over a payment terminal without me or the cashier having to touch anything is nice.