Yes. But how do banks make money? Surely they're not paying airlines for miles and distributing the miles free-of-charge to their card holders out of the goodness of their hearts. What are they getting in return? Either what I said above or something more/different (annual fees is another possibility?).
To be clear: the interchange fees (~2.7%) paid by the merchants are the cost that is always there and completely covers the kickbacks to the consumer. The other things are certainly money makers, but they may or may not be negligible depending on the card and the consumer.
Interchange fees dont go directly to bank providing the card afaik. Visa/Mastercard network take a cut, I recall reading 0.25% on CC in Europe? Then the merchant bank takes a cut (merchant services and shouldering last man standing chargeback/fraud risks - hence why sometimes merchants pay 4%+) and then hmm anyone else?? I doubt any more than 1% is remitted to the bank providing the card given I know some physical retailer (small) paying ~1.4% in UK.
In the UK they also market you for $. They ain't sending you that exclusive "loyal VIP customer" introduction/bonus offer for virgin wine, or some fitness club, or breakdown out the goodness of their heart..Which is probably another nice earner on top of everything else
Very few merchants pay that, notice how there are dozens of segmentations on that page? They have general retail and general e-commerce, your business will slot into one of those two categories worst case. If your merchant processor doesn't put you in one of those two, they are not the sharpest tool in the shed.
Most of the stores I work with average around 0.83% to 0.85% of credit card/debit card volume going to transaction fees, with processor pricing hovering between $0.10 a trans and 10 basis points to 25 basis points.
This is not what I've heard from the handful of store owners I've spoken with. Do you know if data about industry-wide averages rather than the folks you work with?
> This is not what I've heard from the handful of store owners I've spoken with.
Are you well versed in interchange? Have you seen there merchant processing statement? What was their average ticket, Visa/MC/Amex/DC breakdown, total volume, and pricing (basis points, trans fee, plus hidden fees)?
If your a restaurant, you are going to take many more premium cards. My example is from grocery, where debit cards are common, and the retailers are extremely aggressive and sue companies like Visa on a quarterly basis.
>Do you know if data about industry-wide averages rather than the folks you work with?
Lololololol, that is a good one! No, this is an extremely fractured industry with literally hundreds of players, operating using pyramid scheme brainwashing tactics, and in ACN's and CDS's cases, as actual pyramid schemes (the latter pushed via a church).
Industry players don't share, and there are contracts & regulations preventing First Data, Tsys & Elavon from aggregating and distributing that type of info about their ISOs portfolios. Akin to the firewall in Investment Banking between analysts and bankers, it isn't about to come tumbling down.
What I can tell you is running a bit below 1% cost is fairly common in the supermarket vertical. Restaurants and other retail trend higher, due to their poor lobbying power, but still you should be well within 2.5% if not 2% if your clientèle aren't all exclusively using top tier cards and you aren't processing through some racket like Card Data Services where your fellow parishioner sold you payment processing that is 150 basis points over interchange.
Right, so "Most of the stores I work with average around 0.83% to 0.85%" is not very representative. I'm pretty happy with my initial characterization, whose roughness I emphasized with a tilde. Thank you for the interesting comments about the industry.
Correct. Merchants pay about 2% on credit card charges. The other big earnings stream for banks are finance charges on cardholders who carry a balance (ie, borrow money from bank).
Every cardholder who uses their card borrows money; carrying a balance is a matter of not paying it back within the grace period, but you are borrowing money either way.
Most attempts at pointless pedantry are incorrect. In this case, I have at least one credit card where I've put down a deposit of twice the spending limit of the card. At no time am I in debt to the bank, or borrowing money to them. Yes it's a credit card, not a debit card.
Anyways, you were still borrowing money they just had you put up collateral first. You were still in debt to the bank, the fact they were holding collateral for the debt is irrelevant.
It's like if I had a fedora collection worth $30,000 and I go to the pawn shop and they give me a $10,000 loan and hold my Fedora collection as collateral for that loan.
Forgive me if I'm missing something obvious, but what exactly is the point of a secured credit card - how is it really different from just paying in cash?
(I'm from .au, where secured credit cards apparently don't exist, but I've read about the concept on the internet in the American context)
So if you have no history of paying back loans the bank doesn't want to loan you money unless you put up collateral. You use it to build up a credit history without risk of default to the bank - if you default they keep your collateral.
Secured cards aren't intended to be used long term. They are only for when you don't have a history (or poor history) of paying back debts. Many (most?) secured cards automatically convert to a non secured cards after a while, like six months or so.
Thanks. Interesting to know - I wonder why banks over here don't think they're particularly necessary. (I got my first credit card, unsecured, when I was still an undergraduate working part-time and receiving government welfare payments...)
> Thanks. Interesting to know - I wonder why banks over here don't think they're particularly necessary.
I suspect that there are probably regulatory or other systematic differences that make them not worth offering; while they are sold here as ways to build credit they don't seem to actually be necessary to that purpose. Even without credit cards, most people seem to be able to build a history of having and paying financial obligations that will result in sufficient credit to qualify for regular (if low-limit) credit cards in a reasonable period of time without secured cards.
My card was issued somewhere I have no credit history. The point of the card is to have access to a credit card -- with its benefits -- without needing to borrow from the bank.
It's nothing like that, as money is fungible and fedoras are not. I suppose you'll tell me that if I prepay my credit card to a positive balance, and spend that money, I'm also borrowing?
Yes, money is fungible which makes it seems like a nonsensical dance ("can I borrow $10? here's $20 collateral.") but I promise you, it's exactly that. As silly as it sounds you really are borrowing money with money as collateral. The money you borrow even comes with an interest rate and you get charged interest if you don't pay the balance in full (only minimum)!
If you weren't actually borrowing money then it wouldn't effect your credit score, full stop.
For example, read the terms for Discover's secured card:
>If you are in default under the Cardmember Agreement or the Account is closed for any reason, you authorize us at any time(s) to withdraw all or any portion of the Funds from the Security Deposit Account and apply them to reduce your Obligations. Any such application of Funds will not constitute any part of the Minimum Payment Due under the Cardmember Agreement. You will continue to be responsible for making payments as required under the Cardmember Agreement and for repaying any outstanding Obligations.
> Most attempts at pointless pedantry are incorrect.
That wasn't an attempt at pedantry (ironically, it was actually abbreviated to avoid pointless pedantry; the original draft had "of conventional credit cards who have not paid on the account in advance of spending" after the "cardholders".)
> In this case, I have at least one credit card where I've put down a deposit of twice the spending limit of the card.
As a sibling comment and it's descendants point out, using such a secured card is still borrowing money in the same way that using an unsecured card is, and still subject to interest charges on the debt if not paid within a specified time just like unsecured cards. That you are putting up collateral to limit the banks default risk (and typically getting a better interest rate on any carried balance than anyone without excellent credit would get on an unsecured card because of that) doesn't alter that fact.
> At no time am I in debt to the bank, or borrowing money to them.
Yes you are; the bank just has possession of some of your property and a right to seize ownership of that property, as well as the possession it already holds, in the event of default on the debt. This is similar to what happens when you borrow money against property at a pawn shop.
