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I don't have much knowledge about financial markets but I was wondering how banks offering credit cards make profit? One possible way is interests on late payments but let's say if most of the people who own credit cards pay on time, will these banks still make lots of money? Or is there any other financial instrument built on credit cards?

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They charge merchants a transaction fee, typically between 1% and 3%, for processing every credit card transaction. And of course they make money on interest charged to customers even if they pay on time, as long as the customers don't pay off their balance in full every month.

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  • Visa, MasterCard charge merchants or banks? – sapsid Jan 16 '16 at 8:43
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    @sapsid both. Banks charge the merchants whom they serve, and share a portion with Visa/MC who own the network, who in turn share a portion with the card issuers. – littleadv Jan 16 '16 at 8:51
  • some banks/credit card companies make money on an annual fee they charge for the privileged of having their card. Of course they also spend money on the perks they offer: miles, cash back... – mhoran_psprep Jan 16 '16 at 13:45

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