How do credit card companies make profit by giving us credit for 40-50 days (India). I purchase something on my credit card and I pay it to the credit card company after some days. How are they going to make profit with this where I'm not paying any service charge to them?

I'm asking this for couple of reasons.

  1. I heard that credit card companies charge the merchant with some percentage of the bill amount. Is this true? If that is true then why cant we get that percentage directly from the merchant by paying cash. We can get this percentage by getting discount in bill. isn't it?

  2. If they get profit from late fees or interest charges if customer makes late payment or pays long after due date. If this is the way they get profit, is this big amount compared to what they offer in credit to the customer?

Please put some points from your side to make me aware of this system, so that I can get maximum from a credit card company.

  • 9
    I've found in India, merchants charge an additional 2% when you buy on card in order to cover the payment they make. I believe in other countries (like America) the merchant is not allowed to charge extra for card payments, but in India they can and they do.
    – statictype
    Commented Aug 12, 2010 at 1:33
  • 6
    Even in India it is not legal to charge that extra amount to customer. If customer complains about that extra charge, then merchant will face the action. Commented Aug 12, 2010 at 7:06
  • 4
    I think you answered your own question. BTW: Those fees to merchants can be pretty high. I've heard Amex merchant fees can be as much as 8%, which is probably why no one takes them.
    – JohnFx
    Commented Aug 12, 2010 at 15:45
  • 2
    @JayaprakashReddy I think it doesn't make any difference if the customer complaints merchant will continue to charge that 2% & will never face action as well. It's India!! :)
    – Pratik
    Commented Oct 18, 2012 at 15:01
  • 1
    @JayaprakashReddy Where should a customer complaint if the retailers are charging that extra amount to customers, please advice.
    – Pratik
    Commented May 14, 2014 at 4:28

9 Answers 9


Their income is from the two sources you mentioned - they charge the merchants for each use, and they make interest money on people who carry a balance.

This is one reason a lot of merchants will be willing to give you a discount if you pay cash - they don't have to give a portion to VISA or MasterCard.

I wouldn't be able to speak to the relative proportions between the two income sources, but when many cards are at 30% interest for balances carried, and many people have tens of thousands of dollars owed on their cards, the interest income is not insignificant. They'll also charge interest immediately on cash advances.

A few cards also make money off of annual fees, although I'd suspect this is not very much in the full scheme of things.

The way to get the most out of a card, is to always pay it off fully at the end of each month.

  • 8
    I believe many merchant agreements prohibit stores from charging different prices for cash or credit, which is why you don't often see that. Commented Aug 12, 2010 at 0:16
  • 8
    @Eric: I think stores are prohibited by their merchant agreements from adding a "surcharge" for credit transactions. I've seen some (computer stores, notably) work around this by offering a "cash discount". i.e. the regular price has the surcharge built-in. Commented Aug 12, 2010 at 0:20
  • 3
    A few cards also make money off of annual fees This was reduced for a while, likely due to competition. However, that's creeping back into the market. Commented Aug 12, 2010 at 0:33
  • 3
    Note that the elevated interest rates on credit cards are somewhat offset by the elevated risk of default. You could charge a trillion percent interest and still lose money if no one ever paid you back...
    – user296
    Commented Aug 12, 2010 at 17:43
  • 2
    @Eric: money.stackexchange.com/questions/3196/… says merchants can now announce a discount for cash.
    – dfrankow
    Commented Dec 25, 2010 at 19:29

Some large merchants do not give discounts for cash payments as this does not work out any cheaper for them, vs Credit Card payments. In Credit Card typically fees given to all the 3 parties (Merchant bank, Issuer Bank and Visa) would be around 3%.

If cash payment is made, and the amounts are large (say at Walmart / K-Mart they have to deposit such cash at Banks, Have a provision to Storing Cash at Stores, People to count the cash. So essentially they will have to pay for

  1. Cash Officer to count,

  2. Bigger Safe to store,

  3. Transport & Security & Insurance to take Cash to Bank

  4. Plus Banks charge around 1% charge for counting the large cash being deposited.

  5. This cash would be in local branch where as the operations are centralized and Walmart/K-Mart would need the money in central account, it takes time to get it transferred to a central account, and there is a fee charged by Bank to do this automatically.

On the other hand, smaller merchants would like cash as they are operated stand-alone and most of their purchases are also cash. Hence they would tend to give a discount for cash payment if any.

  • 1
    Interesting. I didn't know that banks would charge percentages instead of fixed fees for large companies.
    – MrChrister
    Commented Sep 27, 2010 at 17:10
  • 2
    Large merchants also get volume discounts on transaction fees from credit card companies. Not a verifiable source, but I once met a Home Depot operations employee who told me Walmart paid something like 0.2%
    – Jay
    Commented Oct 3, 2012 at 16:45
  • "Banks charge around 1% charge for counting the large cash being deposited." So if I (pretend that I'm a large merchant) count the cash myself, can I decline the bank's cash counting service and avoid the charge? Commented Sep 5, 2017 at 20:42
  • 2
    @DanHenderson Counting the cash yourself satisfies yourself that it's what you supplied. It doesn't satisfy the bank that it's the amount they received.
    – Lawrence
    Commented Jan 9, 2019 at 10:55
  1. You are correct. Credit card companies charge the merchant for every transaction. But the merchant isn't necessarily going to give you discount for paying in cash. The idea is that by providing more payment options, they increase sales, covering the cost of the transaction fee. That said, some merchants require a minimum purchase for using a credit card, though this may be against the policies of some issuers in the U.S. (I have no idea about India.)

  2. Also correct. They hope that you'll carry a balance so that they can charge you interest on it. Some credit cards are setup to charge as many fees as they possibly can. These are typically those low limit cards that are marketed as "good" ways to build up your credit. Most are basically scams, in the fact that the fees are outrageous.

Update regarding minimum purchases:

Apparently, Visa is allowing minimum purchase requirements in the U.S. of $10 or less. However, it seems that MasterCard still does not allow them, for the most part. Moral of the story: research the credit card issuers' policies.

A further update regarding minimum purchases:

In the US, merchants will be allowed to require a minimum purchase of up to $10 for credit card transactions. (I am guessing that prompted the Visa rule change mentioned above.)

More detail can be found here in this answer, along with a link to the text of the bill itself.

  • No it is not illegal in India :(
    – Faiz
    Commented Aug 12, 2010 at 8:44
  • 1
    Do you have a source for minimum credit purchases being illegal in the U.S.? I find it quite common, especially at dollar stores. Commented Aug 12, 2010 at 14:15
  • @stephen Thanks for pointing that out. In my haste, I forgot to check whether that was a matter of law or just policy. Commented Aug 12, 2010 at 17:32
  • 1
    Soon, every network will have to allow minimum purchases. money.stackexchange.com/questions/3196/…
    – graywh
    Commented Sep 27, 2010 at 15:30
  • @gray Thanks for the reminder. I've updated the answer to reflect that and link to the answer as well. Commented Sep 27, 2010 at 15:39
  1. Yes, merchants are charged. Visa/Mastercards charge 1 to 2%, of which some part goes to the Visa/MC and the rest to the issuing bank (if you have an HDFC Bank Visa card, HDFC bank is the issuing bank. And yes, you can get a discount from the merchant - while it probably isn't allowed by Visa/MC, some merchants still provide discounts for cash. But you won't get it at places like supermarkets or large brand retail.

  2. Late fees + charges can be huge. In multiple ways - first, they all seem to charge a late fee of Rs. 300-500 nowadays, plus service tax of 10%. Then, you will pay interest from the bill date to the eventual payment date. And further, any new purchases you make will attract interest from the day they are made (no "interest-free" period).

Interest rates in India on CCs are over 3% a month, so you really must get rid of any open balances.

I've written a longish piece on this at http://in.finance.yahoo.com/news/The-good-bad-ugly-credit-yahoofinancein-2903990423.html


There are 2 parties when we say credit card companies: The bank that gives you a card & VISA/Mastercard

For a Bank the revenues generally come from:

  1. Fees from merchants for POS terminals which many people have explained is in the range of 1-2% of the purchase.
  2. Annual fees(if any) charged on the card
  3. Late payment fees & interest charges in case someone is not able to pay on time or chooses to pay the Minimum amount due.

For VISA/Mastercard the revenue is from:

  1. Service revenues from banks for their participation in card programs
  2. Data processing revenues from banks for authorization, clearing, settlement, and transaction processing services
  3. International revenues from transactions where the cardholder issuer country is different from the merchant’s country

P.S. Have not covered American express here but in short it is a combination of the above 2 models


Your reasons are the main ones, but I'm surprised nobody mentioned currency conversion fees as a third income stream. (4th if you count annual fees as mentioned by @eclipse.) Credit cards are very convenient for travelers, and can be used for online purchases which might not be in the same currency as your account. The credit card company will usually charge a fee for this. My credit card charges 1.75%, but different cards/banks/countries will charge different rates.


One thing that the other answers miss here is the interest they charge for EMI payments. In India, credit card companies usually charge from 10% to 15% interest for EMI purchase.

To summarize, in India credit card companies earn from

  1. Interest on EMI purchases.
  2. Interest on late payments.
  3. They charge interest for any cash withdrawn. There is no grace period for this.
  4. Charging merchants. Normally this is around 2% in India. This is one of the reasons why many small shops in India stick to cash. In some cases this cost is transferred to the customer.
  5. Fixed yearly charges such as account maintenance charges. Normally this is around 500 INR per card and is discounted if the usage exceeds a certain amount.
  6. Premium cards - Many Indian banks offer premium credit cards that can cost as much as 5000 INR p.a. (10 times the normal charge). They usually come with perks such as coupons, or discounts on their partner services, etc...

Credit card companies make profit by collecting fees. Out of the various fees, interest charges are the primary source of revenue. When credit card users fail to pay off their bill at the end of the month, the bank is allowed to charge interest on the borrowed amount.

Other fees, such as annual fees and late fees, also contribute, though to a lesser extent. Another major source of income for credit card companies is fees collected from merchants who accept card payments.

Through the fees they get to collect, banks make a profit on their credit card business.


Its not just late fees. The fees for going over your credit limit are exorbitant. To make things worse, they will rearrange the transactions you make during a day so that they can charge you more by making more of them fail.

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